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Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 482
Experience:  Former IRS Revenue Agent
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When refinancing mortgage, why are there additional fees for

Customer Question

When refinancing mortgage, why are there additional fees for homeowners ins and property taxes? Home insurance is paid for the next year and property is homestead exempt status.
Submitted: 10 months ago.
Category: Tax
Expert:  Dr. Fiona Chen replied 10 months ago.

Dear Customer,

The additional cost you are referring to is placed into an escrow account which is a trust account to keep the home owners expense to pay out. So, it is not charge by or income to the mortgage company. The mortgage company does not want to come out lost or behind. So, they collect ahead of time to keep in the escrow account. Homestead exempt status reduces the property tax due, but it is not tax free.

These are normal cost and charges for a mortgage company to request in order for them to be willing to refinance and/or loan money out. In a way, they have the upper hand.


Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP

Customer: replied 10 months ago.
Does this money come back if the insurance and taxes are kept up to date? And will these expenses cease after a few years of steady payment, or will they always be part of the monthly amount due?
Expert:  Dr. Fiona Chen replied 10 months ago.

Dear Customer,

1) Your mortgage company will and should pay for your home owner insurance and property tax. You should not pay these costs from now on. You pay to the monthly mortgage payment. In turn, the mortgage company will pay for your property tax and home owner insurance on your behalf from the escrow account.

2) They will always be part of the monthly mortgage payment.

3) Sometimes, the homeowner will arrange the mortgage payment be separated from property tax. However, most of the times, the mortgage company prefers to have both property tax and insurance payment from the escrow. By doing so, they protect the owner's values and rights and their values and house, too, on the house.