Refinancing your mortgage can help you save money by securing a lower interest rate or changing the terms of your loan But did you know you may also be owed money from your previous lender after refinancing?
If your old mortgage set up an escrow account, you should be able to get the rest of the money after you pay off your loan. This check from escrow can be a nice bonus, but how long does it take to get?
This article will explain what an escrow account is, why you might get a refund after refinancing, and when you can expect to get your escrow check.
What is an Escrow Account?
An escrow account is a special account many lenders use to collect funds from your monthly mortgage payment to pay expenses like property taxes and homeowners insurance on your behalf.
Here’s how it works:
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A portion of your monthly mortgage payment goes into the escrow account
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The lender uses these funds to pay your property taxes and insurance premiums when they are due
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This makes sure that your insurance and taxes are paid on time and keeps you from having to pay a lot of money all at once when the bills are due.
Escrow accounts provide a convenience by managing these costs for you. But when you refinance, any leftover money in the account must be refunded to you.
Why Do I Get an Escrow Refund After Refinancing?
When you refinance and pay off your mortgage, the escrow account you had before is closed. You, not the lender, own any extra money in the account.
Common reasons you may have funds remaining in your old escrow account include:
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Lower property taxes or insurance premiums: If these expenses decreased over the life of your loan, more money built up in escrow than needed.
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Overage or cushion: Escrow accounts are required to maintain a cushion, typically equal to 1-2 months of escrow payments. This provides a buffer to cover changes in tax and insurance bills. Any extra cushion gets refunded.
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Change in escrow requirements: Your new mortgage may have different escrow guidelines, resulting in excess funds.
No matter what caused the surplus, the unused money in your closed escrow account must be returned to you through an escrow refund check.
When to Expect Your Escrow Refund Check
The timing on receiving escrow refund checks can vary. Here are some guidelines:
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20 days: Under federal law, escrow refunds should be sent within 20 days of the escrow analysis following the refinance payoff.
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30 days: Many lenders quote 30 days as their standard turnaround policy for issuing refunds after closing.
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2 – 8 weeks: Some refunds take several weeks to process due to verification of payoff funds, paperwork, and back-end procedures.
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Same lender refi: Refinancing with your existing lender may delay your refund, as they simply transfer the escrow balance to your new loan.
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Year-end refis: Refinancing at the end of the year could extend timeframes if your taxes are due and the lender must deduct outstanding bills before refunding the remainder.
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Request status: You can contact your previous lender to request a status update if you haven’t received your check within 30 days post closing.
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Follow up: If it’s been more than 6 weeks, follow up again to investigate any issues holding up your escrow refund.
While frustrating to wait, it’s normal for escrow refunds to take 30-60 days to process and disburse. Notify your lender right away if you hit the 6-8 weeks mark with no check.
Tips for Receiving Your Escrow Refund Check
Follow these tips to help ensure you smoothly receive your escrow refund after refinancing:
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Verify your contact info: Make sure your previous lender has your current mailing address to overnight the check.
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Double check payoff: Confirm your old mortgage balance was paid in full so there are no obstacles to releasing the remaining escrow funds.
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Watch the mailbox: Your refund check will come directly from your old lender, not your title company or real estate agent.
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Mark your calendar: Note dates 30 days and 60 days post-closing to follow up if the check doesn’t arrive.
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Ask about status: Don’t hesitate to contact your prior lender to check in on the status of your escrow refund.
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Bring account numbers: Have your old loan/escrow account numbers handy when you call for a status update.
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Cash the check: Once you receive the check, deposit it right away before it expires!
With a little patience and proactive follow up, you can ensure you get the escrow refund you’re owed in a timely manner.
The Takeaway
If you had an escrow account set up with your old mortgage, you’re likely due a refund after completing a refinance. This results from leftover funds in your closed escrow account that get returned to you by check.
It’s common for escrow refund checks to take 30-60 days after closing to be processed and mailed out. Follow up with your previous lender if you haven’t received your check within this timeframe. With a little diligence, you can secure the escrow refund you’re entitled to!
What Is Netting an Escrow Account?
When you have a mortgage, your lender often manages an escrow account for you. This account is used to pay things like property taxes and homeowners insurance. Each month, part of your mortgage payment goes into this account, and when taxes or insurance are due, the lender pays them on your behalf.
When you refinance, you might have the option to net your existing escrow account. In simple terms, this means your lender will apply the remaining balance in your escrow account toward your loan payoff rather than refunding the balance to you after closing. Here is how choosing to net your escrow compares to choosing not to net escrow and receive a refund after closing:
- Refund After Closing:
- Your existing escrow account is closed.
- The lender sends you a refund of the remaining escrow balance after the refinance is complete. It might take a few weeks to receive your check in the mail.
- You need to fund a new escrow account for the new loan, which may require additional cash at closing. You will have to bring cash at closing to pay your closing costs and to fund your new escrow account while you wait for your escrow refund check to arrive from your old escrow account.
- Escrow Netting:
- Your existing escrow balance is applied directly to reduce the payoff amount of your old loan.
- Keeping your new loan amount about the same, this can lower the amount you need to bring to closing because the netted escrow funds can be applied to funding your new escrow account or to pay for other closing costs. Or. You could still bring cash to close, and have a lower loan amount, slightly reducing your monthly payment and lowering the total interest you will pay over the life of the loan.
- In either case, no need to wait for a check in the mail with your escrow refund from the loan you refinanced since the funds have been already applied to your new loan transaction.
In Short: The Benefits of Netting Your Escrow Account
1. Reduce the Cash Needed at Closing or Lower Your New Loan Amount Refinancing your home can come with closing costs. These can include things like appraisal fees, title insurance, and other costs associated with processing the new loan. When you choose to net your escrow account, the balance in that account is applied directly to your loan payoff reducing the total amount you owe or to reduce the cash you need to close by using the money to pay closing costs or fund your new escrow account. You can choose to lower your new loan amount or reduce the amount cash you need to bring to the closing table, making the process more affordable upfront.
2. Simplifies the Process Netting your escrow balance can make the entire refinancing process smoother and simpler. Instead of waiting for a refund from your current lender after the refinance is complete, you can have those funds immediately available to reduce your new loan balance or apply to closing costs or funding your new escrow. This eliminates the waiting period and the hassle of receiving and managing the refund yourself.
3. Helps You Maximize Your Available Funds When you’re refinancing, especially if you’re trying to lower your monthly payment or total interest paid, every dollar counts. By applying your escrow balance directly to your loan payoff, you maximize the funds available for the transaction. This could mean less financial juggling during the refinance process and more flexibility with your money.
4. Avoids Delays in Reapplying Funds When you receive a refund of your escrow account balance after closing, there’s typically a delay of several weeks before you get that money back. Netting the escrow account cuts out this delay. Instead of waiting, those funds can be put to work right away. This can be especially helpful if you’re trying to refinance quickly or if timing is important in your financial planning.
What happens to your escrow balance when you refinance?
FAQ
How long to get escrow refund after refinance?
After paying off a mortgage in full during a refinance, you can expect to receive any remaining balance in your escrow account within 20 business days.
What happens to escrow money when you refinance?
Once mortgage payoff funds are posted, money held in escrow with your current lender will be returned to you from that lender.
How long does it take to get a check from escrow?
The money in your escrow account should be sent back to you within 20 days if you’ve paid off your mortgage in full. If you are still paying into escrow but an escrow analysis (a process conducted every 12 months) has found you’re due money back, you should receive it within 30 days.
How long does it take for escrow payments to go through?
While most transactions are completed within 1 to 20 business days, transaction timelines are still unique to each transaction and depend on the steps below.