Think you're paying too much mortgage escrow? Follow these tips:
For GMAC Mortgage Corp: If your loan is serviced by GMAC, you're entitled to a refund of escrow exceeding limits specified by federal law or your loan contract -- whichever is lower.
Look at your mortgage contract to determine the escrow balance limit.
About 40 percent of GMAC loans are Fannie Mae (FNMA) or Freddie Mac (FHLMC) contracts issued before May 1991. These allow no cushion in the account above amounts needed to pay taxes and insurance when due. The account balance should fall to zero following payment of the largest tax bill.
About 5 percent are more recent Fannie Mae and Freddie Mac contracts, which specify a two-month cushion -- the maximum under federal law. The low balance should fall to an amount not exceeding two months' escrow.
About 55 percent of GMAC loans are VA and FHA contracts, which allow a one-month cushion for each item.
Escrow refunds will average about $375 for zero-cushion contracts and $150 for two-month contracts. The refund could be less if a tax increase creates a shortage.
You can't get a refund right away. You'll have to wait for GMAC's annual escrow analysis. Refunds would come in April or May with new payment books.
For other loans: If your loan isn't serviced by GMAC, a recent court settlement requiring refunds doesn't apply to you.
Check whether escrow balances exceed the two-month cushion, or stricter contract limits.
Request a copy of your escrow account analysis. Calculate a month-to-month running balance, adding each month's escrow payment, and subtracting bills when due. The low balance, after paying the largest tax bill, shouldn't exceed two months' escrow payments. It should fall to zero if you have a zero-cushion contract.
For disputes: Don't reduce or stop paying the escrow amount specified by the lender, even if you think it's incorrect. You could be subject to late charges and, ultimately, foreclosure. When you get a new payment book, contact the lender and document any overcharge. If that fails, complain to the attorney general.
Avoiding escrow: When you buy or refinance a home, you don't have to pay escrow if you have 20 percent equity, a stable job and good credit. If taxes and insurance are $2,500, you could earn about $60 a year by investing the money until bills are due.