Refinancing and your property tax escrow

An escrow account holds money for your property taxes and homeowners insurance. Each month, part of your mortgage payment goes into it, and your servicer pays those bills when they're due. Most loans have one, and it's standard for a new loan to set one up.

When your new loan pays off your old one, your old servicer closes your escrow account. Any balance left belongs to you. Your old servicer sends it back, usually within 30 days of payoff, often by check to the address on file. Make sure that address is current.

Your new loan's escrow account starts empty, so you'll usually make an initial deposit at closing. That deposit gives your new servicer enough to pay upcoming tax and insurance bills on time, plus a small cushion that federal rules allow.

The amount depends on when your tax and insurance bills are due and how many months of payments will build up before then. It's shown on your Loan Estimate and Closing Disclosure.

If a property tax bill is due shortly before or after your closing, it may be paid at closing from your loan funds or your escrow deposit. Your settlement agent checks tax due dates so a bill isn't missed while the accounts change hands. Tax due dates and billing schedules vary by locality.

Because the new deposit is due at closing and the old refund comes later, you may briefly have money in both accounts. Plan for that gap. For many clients, the refund from the old account ends up covering much of the new deposit once it arrives.

CapCenter's ZERO Closing Costs offer pays for or waives the closing costs typically required to process a loan (restrictions apply). Escrow deposits and prepaid mortgage interest aren't covered. They aren't lender fees. They're your own money set aside for your own bills.

Your new monthly payment includes principal, interest and the escrow portion. If your taxes or insurance changed, the escrow portion may change too. Your servicer reviews the account each year and adjusts your payment if needed.