If you have an escrow account with a mortgage do you pay interest on the escrow amount of the payment each month?

Answer 1

Interest is only calculated on the principal balance of the loan. For example, on a 30 year loan, if your principal balance (or loan balance is $100,000.00, and your interest rate is 5.000%, your monthly Principal and Interest payment amount would be about $537.00. Your first payment would include approximately $417.00 in interest, which would gradually decrease, as the principal payment would increase. If you have a reserve or escrow account set up for the payment of Taxes and Hazard/Homeowners Insurance, then your monthly payment would include the monthly payment amount for those items. Below is an itemization of a typical mortgage payment with the above Principal and Interest calculation, and showing how your mortgage lender will calculate the monthly amounts. Annual Property Taxes: $3000.00 / 12 Months Monthly Tax Amount: $250.00 Annual Hazard/HO Insurance: $600.00 / 12 Months Monthly Insurance Amount: $50.00 --------- Principal: $120.00 Interest: $417.00 Tax: $250.00 Insurance: $50.00 TOTAL PAYMENT $837.00 --------- For more information on this subject, visit this website. They have a wonderful real estate dictionary and FAQ section under the resources tab. http://www.eescrowservices.com Also, just for your information, many states do not allow lenders to collect the interest on the pooled reserve account. You'll need to check with your state's banking regulatory commission or department. One last thing...the figures shown here are estimates and will differ from the amounts that your lender provides to you.