How to Get Money Back Early from Your Yearly Escrow Statement

It's that time of year when we start preparing for T-Day (taxes). You will soon be getting all your important documents in the mail if you haven't already. Actually, by law documents should be out no later than January 31st. One of those documents will be our 1098 Mortgage Interest Statement. The Mortgage Interest Statement shows how much of the mortgage interest was paid. In addition, on the Mortgage Interest Statement, most lenders attach a breakdown of your taxes, insurance, principal activity, and escrow activity for the year. The average person just takes what they need from the Mortgage Statement which is your interest and taxes without any regard to checking amounts that are given. However, I want to point something out to you regarding your escrow amount that might give you some extra cash if you qualify.

This year I received my Mortgage Interest Statement and noticed a large surplus in my escrow in addition I noticed my interest was actually higher than last year's interest and I have a 30 year fixed conventional mortgage. That shouldn't happen. I'll discuss what happened to the interest part later. Normally, I watch this because I have learned that you can request money from your lender if there is too large of a surplus in your escrow. However, most times when you get a customer service rep they will give you some jaw boning telling you that they review it once a year and if they find a surplus or deficit they adjust it. They expect you to say, ok, "thank you". I'm here to tell you that you can request a review early.

In my case, the customer representative told me that in June they will evaluate my escrow. When I argued that the amount in my escrow is almost the amount of my taxes already and taxes were just paid in November, he just replied "well they have to consider your hazard insurance and if you pay mortgage insurance premiums". It took me a few times to convince the rep that it was still to high and I demand a review now. So, he complied and told it will take two weeks for the review and if they do find a surplus, they will send it to me.

Ok, well, that's fine I thought. After I hung up with him, I noticed my mortgage interest was higher than last year's. Typically every year I pay my January mortgage in December which is allowed by law to give me more interest paid in that year. It's one way to get more deductions in case you aren't aware of that. However, in 2006, I knew I didn't pay my January mortgage payment in December.

So I called back my bank and spoke to a different customer representative. When I explained the situation, he started giving me more jaw boning that there are reasons why this can happen. I told him I have a lot of experience with mortgages and as far as I knew amortizing interest on a conventional fixed rate which is what I have should have only one way for it to be done, and that is the right way! Well, after being persistent, he transferred me to the corporate office to speak to someone there. This time I got a sharp minded woman saw the problem immediately.

Here's what happened. My bank has a requirement that you can only take that extra January payment every other year. What I did was I took it in 2005 and knew I couldn't take it in 2006, but didn't take it in 2007. So my 2006 year interest was less because it had 11 months of interest versus my 2007 which had 12 months. That resolved that issue, however I told her what gets me angry is that you get customer representatives acting like there are reasons for things that are not true. And if someone who doesn't understand mortgages or amortizations calls with a question like I had, they can be misleading in understanding how the mortgages work.

So the bottom line is, look at your statement and make sure everything is correct. I even found out after talking to that woman they had my monthly escrow too high because they were calculating home owners insurance in there which I pay separately. That really was the reason for the surplus all along.

So, if you do request a review early for your escrow analysis, follow through in writing because you might get the type of customer representative I did on the phone. If your bank receives it in writing, by law they have to review it because there is a limitation of how much surplus can be kept in an escrow account and they could get in trouble if they do not comply.