If you have recently purchased a home through a loan or a close loved one has told you about a loan they applied for, chances are they have mentioned what escrow is.
Escrow is a third-party account into which you deposit money for various debts, such as taxes and homeowners insurance. Through it, the money is automatically deducted, so it saves time. However, sometimes we may need to refinance our escrow account.
Why should I refinance my escrow account, and when should I do it?
Refinancing is a good way to reduce monthly payment installments and interest rates. By refinancing, you will most likely save a lot of money, so it is highly recommended that you consider it.
However, not everyone is eligible to apply for refinancing. The requirements will depend on the bank or lender you are working with, but they usually require that a certain percentage of the mortgage has been paid off to be approved for refinancing.
Can I ask my escrow lender for a refinance?
Of course, you can. But when you ask the same lender to refinance, the escrow account may not change. On the other hand, if you are comfortable with your current lender or bank, you may want to refinance with it.
When you refinance, you will have to sign a new contract with new terms, so even though you are already working with the company, it is recommended that you read the terms carefully.
What are the advantages of refinancing my escrow account with the same lender?
The main advantage is that we already know how the lender or bank works since there is a working relationship. This way, communication will be easier, and you already know how the payment processes are carried out.
Another advantage is that some banks or lenders usually offer lower rates than the competition since they want clients to refinance.
Finally, the time it takes to complete the process is much shorter. Refinancing with the same lender can take approximately 45 days to close the refinance.
What would the closing costs be like when refinancing with the same lender?
Just as you had to pay closing costs at the time you obtained the mortgage, most of the time, when you refinance, you will have to cover these costs again. They can range from 2% to 6% of the loan value. On average, closing costs range from $5,000.
But as mentioned above, these fees can be reduced by refinancing with the same lender.
Among the advantages typically offered by lenders, there may be no title insurance fee, no mortgage insurance fee, no application fee, no additional mortgage insurance fee, and no survey or inspection fees.
It is important to note that sometimes lenders transfer loans to another company after closing costs are covered.
In these cases, you must confirm who your current lender is, so you do not feel obligated to choose the same lender for your refinance if you do not agree.
Because of this, we recommend that you consider all of the above before deciding on a company for your refinance.
When would be the best time to apply to refinance my escrow account?
Choosing the right time to apply for your refinance could save you a lot of money. It is recommended that you apply early in the year, as lenders tend to increase upfront taxes in the later months.
Also, keep in mind that you won’t be able to use the escrow account for approximately 30 to 45 days, so you will most likely have to dip into your savings to pay closing costs.
Do I have to pay closing costs on all refinances?
Not necessarily. Some companies offer refinancing with no closing costs. However, these options have their pros and cons.
One of the cons is that these no closing costs refinance very high-interest rates, and the monthly payments are also higher compared to a refinance with closing costs.
You may choose this option only when you don’t have enough money to pay the closing costs or if you don’t want to wait that long and want to move in immediately. Otherwise, it is better to opt for a refinance with closing costs.