The question first…then my answer.

“I was under the belief that if my lender was holding funds in escrow for my taxes and insurance, I was owed some nominal rate of interest. Is that true? What if they over escrow…I get the money back, but shouldn’t they have to pay me interest at least on the over-escrowed amounts”?

Boy, it would be nice if it worked this way.

It doesn’t.

Lenders and their servicers are not required to pay the borrowers interest on escrow account balances …however inaccurate.

Lenders typically accumulate these funds and pay them on behalf of the borrower when they are due at the county for taxes and with the insurance company either once or twice a year.

They make “mistakes” and often escrow too much or too little and eventually adjustments are made either requesting additional monies or making refunds.

But at no time do they own any interest to the mortgage payers…you.

In addition, if a borrower made an additional payment which was meant to go toward principal but was NOT credited correctly, this money could also sit in the escrow account not bearing interest as well.

So make sure any prepayment of principal gets the proper credit by periodically checking your escrow balance.

Great question!

Good Luck!

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