LERETA Survey Reveals Lack of Understanding of Escrow Accounts

(Image courtesy of Karolina Grabowska/pexels.com)

LERETA, Pomona, Calif., released a new survey showing that among respondents who have an escrow account with their mortgage, only 52% “completely” understand how that account works.

Nationally, about 80% of mortgage holders have an escrow account.

More than 80% said they understand the general idea of an escrow account, but 28% are only somewhat aware or not aware that changes in their escrow accounts can affect their monthly payments.

Thirty-six percent of respondents with a fixed-rate mortgage believe that their monthly payments can never change. And 53% of those who experienced an increase in their monthly mortgage payment were surprised.

One important factor affecting escrow accounts is the recent increase in insurance premiums, particularly in states such as Florida, California and Texas.

With such anticipated increases in mind, 50% of homeowners surveyed said it would be a hardship if their monthly payment increased by 10%. And 15% said they would not be able to pay their mortgage under those conditions.

If payments increased by 25%, among those surveyed 49% said they would not be able to pay their mortgage.

“The findings reinforce what our associates are hearing every day at our tax service call centers. In 2023, 60% of the calls were related to escrow accounts, specifically shortages due to rising property taxes or insurance costs,” said John Walsh, CEO of LERETA. “With some observers predicting an ‘escrow cliff’ in the coming years, this lack of understanding is concerning. It suggests that homeowners—both with and without escrow accounts—will at the very least be getting some unpleasant surprises.”

LERETA conducted the survey in February, querying more than 1,000 homeowners who had purchased or refinanced homes in the past four years, and who have an escrow account, on how well they understood their escrow accounts and how potential increases would affect them.