Can I Avoid an Increase in Mortgage Escrows?

January 10, 2000 "Our mortgage company recently notified us that our mortgage payment will be increased by $300 per month. The explanation they gave was that when we bought our home a year ago, they grossly under-estimated our escrow, and now they must make up for it. We cannot afford this increase. Is there any way we can protest it? Will we lose our home if we just keep paying the original amount?" In your contract with the lender, you agreed to make monthly payments into an escrow fund out of which the lender would pay your property taxes and insurance. It is always possible that the lender is trying to collect more than necessary, but I wouldn't bet on it because there are some pretty strict HUD rules about how escrows are calculated. You can ask the lender to explain the calculations to you, or you can on your own find out what your taxes and insurance premiums are, or both. Assuming the increase is justified, you have to pay it or you can indeed lose your house. If you don't pay it, you will be marked as delinquent and incur a late charge, just as if you had not made the full mortgage payment. In fact, if the lender keeps the taxes and insurance current, which is very likely, the shortfall will appear in the mortgage payment. If the situation is not fixed, it will lead to foreclosure. Copyright Jack Guttentag 2002

Jack Guttentag is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Visit the Mortgage Professor's web site for more answers to commonly asked questions.

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