All You Wanted To Know About Escrow PaymentsEscrow takes place when a buyer makes a payment to an intermediary. The intermediary releases the payment to the seller upon completion of the transaction. The payment made by the buyer is known as Escrow Payment An Escrow payment is held in an account by the intermediary to protect the interests of both the buyer and seller. The payment is held until certain events happen. The payment may be released to the seller when the buyer has approved the transaction. If the buyer rejects the transaction then the Escrow payment is returned to the buyer. Thus the mechanism of Escrow Payment safeguards the interests of both the buyer and the seller. The seller is assured of payment. The buyer is assured of his interests being safeguarded. In certain cases the intermediary who has received the Escrow Payment may optionally undertakes to provide for the inspection of the goods bought. This is in the nature of a value added service. If you are taking part in an on line auction as a purchaser you will definitely be interested in making an Escrow Payment. In other words you would be making a payment to an escrow service. This would be different than a direct payment to a seller. Making a direct payment to the seller before you receive the goods would be a very bad idea. Take a look at the credentials of the Escrow Services available before you enter into an on line auction. There is another meaning of the term Escrow Payment. It is in the context of a mortgage loan. Let us analyze it in detail. The four components of a mortgage loan are Principal, Interest, Taxes & Insurance or PITI for short. The mortgage company lends money for a house loan. It undertakes to pay Federal or State Taxes and Insurance premium on the property. This portion of the mortgage payment which is utilized to pay Taxes and Insurance is referred to as Escrow Payment. The mortgage company may require the customer to maintain a separate escrow account and maintain a minimum amount which is roughly equal to twice the monthly escrow amount. The monthly escrow amount is calculated by determining the annual outlay on taxes and insurance and dividing the amount by 12. Variations in annual taxes and Insurance premium can result in an increased Escrow payment by the lender or the mortgage company. Escrow Accounts are a requirement until the mortgage has been paid to around 80 per cent. However in most cases the borrower prefers to keep the Escrow Account active for the duration of the loan If you are a buyer or a seller who is about to enter into a transaction, but have apprehensions about suffering losses, then don't worry. Look at the possibility of Escrow payments. It will safeguard you interests. |