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When refinancing a mortgage, is the bank supposed to use the money in the escrow account to pay down

I am refinancing my mortgage. I currently have an escrow account and am electing to not have an escrow account with my new mortgage. Can the bank use the money that is already in the escrow account to pay down the refinance ammount or should I be getting this refunded back to me? I was told I would not be getting this money back so I can put it towards paying the taxes and insurance myself, eventhough that is what the escrow account is for.
  • March 16 2012 - Houston
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Answers (8)

depends on the servicer; we net escrows (apply it towards the balance) on the payoff.

Your new lender shouldn't be promising you anything on that, it's not his decision to make.
  • March 21 2012
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...also, refinancing with a company that is not currently holding your mortgage would guarantee them sending the money directly to you. 
  • March 21 2012
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Profile picture for JAKEBAXTER
The mortgage company uses the existing funds in your escrow account to pay down the balance of your mortgage when ordering the payoff.  This is called a net funding.  This is a very common practice, but I bet if you push them enough on the issue they can send the escrow funds to you instead of contributing them to your mortgage balance.

Cheers,

Jake Baxter
  • March 21 2012
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Thank you for all of your answers. Very fast and helpfull responses =)
  • March 16 2012
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Most servicers will accept a payoff for the amount owned, minus the current escrow balance, provided there are no disbursements scheduled to be paid in the next 30 days,

Many lenders and loan progams will also allow this practice.   That said, it should be your decision if want your payoff done this way, it should not be forced on you.
  • March 16 2012
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I have always refunded.... I have NEVER paid down the mortgage.
I don't know what lenders will do if they also hold the current loan. You might have a choice there?!?!?! <= just guessing here. I can only speak to what we do.


Tom Burris
Mortgage Banker

  • March 16 2012
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It depends.  If you refi with the same company, they may use it do pay down or they may transfer it into your new escrow account.  If it is with a different company the former company should reimburse you.  This usually takes a few weeks to accomplish.
  • March 16 2012
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Profile picture for daveskow
not normally ...but sometimes this  happen ( especially if you are using same bank to refi ) ...most lenders will mail a refund check to homeowner several weeks after being paid off via the new refi
  • March 16 2012
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