All About Escrow
Is an escrow account the right choice for you? If you have a mortgage loan, the answer is most likely yes. An escrow account is an account that allows Royal to pay your real estate taxes, flood insurance, homeowners insurance, and private mortgage insurance on your behalf. If you use an escrow account, you add extra money to your monthly mortgage payment that goes into your escrow account to cover these costs. This makes it easy to budget for these items as a portion of your monthly payments instead of an annual expense.
We set up escrow accounts for most mortgage loans as part of the closing process. If you chose not to set up an escrow account at closing, you can still start an escrow account later. Contact our Mortgage Servicing team for help setting up escrow.
If you have escrow, you will receive an escrow analysis each year from Royal. See a sample escrow analysis with helpful notes here. An escrow analysis projects what we expect your payment to be for the upcoming year, based on what we paid last year. If we expect to pay more or less for homeowners insurance, real estate taxes, private mortgage insurance, or flood insurance, this may change the amount you need to escrow. This will result in a change to your monthly payment.
Any change to your payment will be explained in the escrow analysis document, and typically the updated payment amount is effective April 1 for Wisconsin Members and May 1 for Minnesota Members.
- If you set up automatic payments via online banking or Bill Pay, you will need to adjust the payment to cover any increased amount.
- If you set up automatic payments with Royal outside of online banking or Bill Pay, and your new monthly payment has increased, we will increase your payment for you. If your new monthly payment is the same as or less than your current payment, we will not change your payment amount unless you ask us to.
Depending on your escrow balance, your analysis may also mention a shortage, deficiency, or surplus.
- A shortage means your escrow account still has a positive balance, but not enough to pay the estimated amounts for items that will be paid in the upcoming period.
- A deficiency means there is a negative balance on the escrow account.
- A surplus means there is more in the escrow account than the estimated amounts for items that will be paid in the upcoming period. If the surplus in your escrow account is more than $50, it will be returned to you. If the primary borrower has a share account at Royal, the funds will be deposited into that account. Otherwise we will mail you a check.
If your loan-to-value ratio is greater than 80%, an escrow account is required. If your property is in a flood plain, you will also be required to escrow for flood insurance. Some types of mortgage loans also require escrow regardless of your loan-to-value ratio. If your loan-to-value ratio is less than 80% and you have a conventional mortgage loan, an escrow account may be optional. If you currently escrow for only real estate taxes and/or homeowners insurance and your loan-to-value ratio is low enough, you may be able to drop escrow.
Your county or insurance company may still send you a bill for taxes and homeowners insurance. Royal also receives your tax and insurance billing information and will make the payment from your escrow account. You don’t need to do anything with these bills. You can review your escrow account and see if a payment has been made using online banking. You may also contact us to review your escrow account.
When you pay off your mortgage loan, the funds in escrow are subtracted from the principal balance. Another option would be to close your escrow account (if escrow is no longer required for your loan) and have the funds issued to you. Please ask our Mortgage Servicing team if this option is available for your situation by emailing MortgageServicing@rcu.org.