Ask Sid: Resisting Mortgage Escrow Payment Hikes

Q. My mortgage company recently increased my monthly payment, blaming a “requirement” for additional escrow. Yet that escrow hike far exceeds the upcoming increase in my property taxes, so why should I pay it?

A. Perhaps you shouldn’t. The federal Real Estate Settlement Procedures Act allows—but does not require—mortgage companies to increase escrow reserves as a cushion against future hikes in property taxes and homeowner’s insurance. But that cushion shouldn’t exceed one-sixth of the total amount paid out from escrow each year, or about two months of escrow payments.

If it does, you should ask for a new statement, while providing proof that the escrow increase is beyond what your new tax bill would require.

You may be able to avoid escrow altogether, paying your own property taxes and insurance, if the outstanding loan amount is less than 80 percent of the appraised value of the home.

Sid Kirchheimer writes about consumer and health issues.