Are you a new homeowner? Do you know whether or not your mortgage includes home insurance and taxes? With all the paperwork involved in home buying, it’s easy to get lost and feel overwhelmed. We have a lot of new homeowners who ask us to clarify whether or not their home mortgage payments include their home insurance and property taxes.
The answer is yes, most mortgage payments do include insurance and taxes.
Here is what all new homeowners need to know about their mortgage, insurance, and taxes:
#1 – What does my mortgage payment include?
Your monthly mortgage payment includes principal, which is the amount you borrow that needs to be paid back, interest, which is what the lender charges you for lending you the money, and an escrow payment, which is money allocated to pay your property taxes and homeowners insurance.
#2 – How do I know how much to pay into my escrow account?
Your lender will estimate your yearly home insurance premium and property taxes. This number is just an estimate, so it is possible that at the end of the year you may get a refund or have to pay extra if your lender under or over-estimated the rates.
#3 – What is an escrow account?
If you have set up an escrow account for your mortgage, your lender will deposit the money you pay each month into your escrow account. This will pay for both your home insurance and property taxes when they are due.
#4 – Am I required to pay escrow payments?
Can I pay the yearly fee on my own? You may cancel your escrow payments to your lender once you have built up at least 20% equity in your home and if you are current on your payments. If you decide to go this route, remember that you’ll be responsible for paying your taxes and insurance in full and on time. Regularly scheduled monthly escrow payments are a good option for many homeowners because they help eliminate the surprise of large annual payments due for property tax or insurance.
As always, talk with your insurance agent or lender if you have any questions about the specifics of your home loan, home insurance or property taxes because at the end-of-the-day these payments are your responsibility. Always check your year-end escrow statement to make sure all bills are paid and there are no mistakes.