As I wrote in an earlier post, I use QuickBooks to organize my household finances. Like every good accountant, I am detail oriented and keep meticulous records. I keep every receipt, reconcile each of my accounts monthly, and split the expense categorization of grocery bills between food, cleaning and baby products (OK, just kidding on the last one).
One transaction that I do split out every month is my mortgage payment. My mortgage payments are made up of three parts: loan principal, interest, and escrow. In case you don’t know what an escrow account is, it’s a cash account that the lender holds and maintains to pay property taxes and hazard insurance.
To keep track of my escrow account balance, I created an account in QuickBooks for it under other current assets. When taxes and insurance payments are made by the bank, I enter those in QuickBooks as expenses out of the escrow account. I frequently tie out my escrow account balance in QuickBooks to the loan statements.
Lenders usually do an escrow analysis every year to adjust the amount of the escrow payment so the balance in the account is sufficient to cover the expenses. Usually, the amount of the mortgage payment goes up as tax and insurance rates increase. However, in my case, I significantly decreased my insurance payments (a good subject for another blog post) and my property tax payments have also decreased due to the crash of the Las Vegas real estate market.
Recently, I noticed that my escrow account had a large balance despite barely having made payments for taxes and insurance. I sent the following e-mail to the bank:
I think our escrow account is overfunded. I’d like to request an analysis and receive a refund of any overfunded amount.
The next morning, I was delighted to receive the following e-mail from the bank:
Per your request, we have analyzed your escrow account based on the current escrow balance. Your new mortgage payment is $X effective September 01, 2010. Also, an overage amount of $X has been mailed to your mailing address.
Sometimes having organized financial records pays off. I’ve got the check to prove it.