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What Happens to Left Over Escrow When a Home Loan Is Paid Off?

by Don Rafner

If you've regularly deposited money into an escrow account with your mortgage lender, you might receive a check after paying off your mortgage loan. It all depends on whether there's a balance in that account when the pay-off takes place.

Escrow

Many mortgage lenders require that you create an escrow account when you take out a mortgage loan. Under an escrow arrangement, you pay extra with each monthly mortgage payment. Your lender deposits this extra money into an escrow account and uses it to pay your property taxes and homeowners insurance bills on your behalf when they come due. With such an arrangement, homeowners don't have to worry about missing payment dates for these bills. They also don't have to worry about saving the money to cover them; they do this automatically with each mortgage payment.

Paying Off a Loan

When you pay off a loan, your mortgage lender will close your escrow account. If there is money left in the account, your lender will send this money to you in a check. Just don't expect that check to arrive overnight. Lenders have 30 days to send you your escrow refund.

Refinancing

If you refinance to a new mortgage loan, you might also be eligible for an escrow refund. This will only happen if you refinance with a new mortgage lender and not the one to which you currently send your monthly payments. When you refinance, you are paying off your existing mortgage loan and taking out a new one. This will trigger an escrow refund if you have a balance in your account and if you are moving your business to a new lender. If you are refinancing with your existing mortgage lender your lender will simply keep your escrow account open, though it may need to adjust how much escrow money you'll include in your new monthly payments.

Timing

If you are refinancing with a new lender, you'll probably have to come up with escrow money to fund a new account before you receive your escrow refund from your former mortgage company. Your former lender won't simply transfer your escrow account to your new lender. You'll have to wait for your refund to arrive. Before it arrives, though, your new lender might require an escrow deposit from you.

About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.

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