Author Topic: First time homeowner - am i overpaying on my monthly mortgage?  (Read 421 times)

70sstache

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Hello Mustachians,

I purchased my first home in Detroit 2 years ago - a century old fixer upper for about 50k. I only made the minimum downpayment of about 2% so i currently must have private mortgage insurance and ended up with a pretty high interest rate (5%). My logic at the time was since my annual income was nearly double my mortgage, i should be able to pay off the loan before the interest has time to "hurt" me.

Initially i was paying roughly $600/month. Half went to principal and interest and the other half went to my escrow account for taxes and such. My loan has been sold 3 times since i sold the house and I'm having some concerns with the current owners since they have horrendous reviews online. Last year i got a notice that my escrow account was short by over $2000 so now im paying for the shortage and catching up this year. My current bill is about $900 per month. I couldn't believe that they miscalculated the property taxes that much since the taxable value of my house barely increase since last year.

Is there anyone on this forum a bit wiser than me that can offer some advice? Am I just being paranoid or is this lender trying to take advantage of me?

here is a sample of 2 bills (oldest and newest) with all my info blacked out

https://imgur.com/Xqe7wqP

https://imgur.com/QXxZdMq
« Last Edit: March 18, 2021, 07:30:24 PM by 70sstache »

NotJen

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Re: First time homeowner - am i overpaying on my monthly mortgage?
« Reply #1 on: March 18, 2021, 07:41:08 PM »
If you have your old statements, go through and see if their balance in the escrow account matches what you think it should be.  Make sure the disbursements from the account match your actual bills for insurance and taxes.

I will admit that I completely failed at figuring out how my mortgage company "recalculated" the amount of my escrow each year.  It made no sense, but I kept a spreadsheet of what the escrow balance should be, and they never stole any money from me, and they paid the bills on time, so it was okay.  I was happy to get rid of escrow when I refinanced.

Mr. Green

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Re: First time homeowner - am i overpaying on my monthly mortgage?
« Reply #2 on: March 18, 2021, 08:31:37 PM »
By design, escrow accounts are never supposed to drop below a "reserve" amount. I'm not 100% certain but I believe that amount is two months of escrow payments at the appropriate amount to cover taxes and insurance. Your lender is required by law to send an escrow statement once a year, which typically happens when they recalculate your new escrow payment for the next year.

I see on your most recent account statement that your escrow balance is -$1500. That is way out of whack, if your escrow payments are typically $200-300 a month. Something isn't right there. When your mortgage was sold, was the old company sending you a check for the amount left in escrow or were they passing that on to the new company? If they were sending you a check and you cashed it without forwarding those funds to your new mortgage company that could explain why your balance is so negative. If the new company had to pay your tax bill without having funds already in the account that could make the balance that negative.

The good news is that this situation will rectify itself after one year, assuming your loan isn't sold again. Once the escrow shortage is corrected in the current year, your new escrow analysis will return to only collecting the proper amount of money needed to pay your taxes and insurance.

At that time, if you learn you have overpaid your escrow and there's a significantly higher balance than should be, they will be required to send you a check for the overage

YttriumNitrate

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Re: First time homeowner - am i overpaying on my monthly mortgage?
« Reply #3 on: March 19, 2021, 09:12:26 AM »
You and I unfortunately have the same crappy mortgage servicer. After refi-ing last year, they bought my loan and within two weeks started calling me daily for late payments because their idiotic staff messed up a transfer from the previous servicer to them. Their company really embodies an amazing combination of incompetence and malice, so I would recommend double checking all their calculations.

EDIT: In the most recent statement, there's a $2385 homeowner's insurance payment. Is that really the amount you are paying to insure a $50,000 house?
« Last Edit: March 19, 2021, 09:23:49 AM by YttriumNitrate »

Villanelle

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Re: First time homeowner - am i overpaying on my monthly mortgage?
« Reply #4 on: March 19, 2021, 10:17:22 AM »
Are you required to escrow taxes and insurance?  If not, stop doing it. (This of course depends upon you being financially responsible enough to save the funds yourself and make sure they get paid on time.) 

Regardless, it's time to look back and add up everything you have paid into the escrow account, and everything that was paid by the escrow account, ad make sure the math works and the resulting number is the same as your balance (unless you were paid out some escrow funds when the loan was sold). 

Also, I would look into doing a refi.  The idea that you will pay it off before the "interest hurts you" doesn't make any sense.  Paying $10 more in interest hurts you, because it deprives you of $10.  If you plan to stay a while, looking in to doing a refi at a lower rate (and see what it would take to remove PMI, while you are at it.)