When it comes to real estate, the history of interest rates is full of ups and downs. Experts forecast changes, buyers and sellers adjust their lives and budgets appropriately (or attempt to). And real estate agents try to become the rock in this ever-shifting foundation. But how will rising interest rates change escrow services?
How Will Rising Interest Rates Change Escrow Services?
In partnership with TIME, NextAdvisor released an article about historical averages and trends. We included the following statement that we feel summarizes the situation nicely right now in 2022:
“A recovering U.S. economy and supply chain issues helped drive inflation to levels we haven’t seen in decades. To keep inflation in check, the Federal Reserve has announced its intentions to raise short-term interest rates and began unwinding its support of the bond market, which helped keep rates low. The main drivers for mortgage rates in 2022 will be, ‘growth, plus inflation, plus the Fed, really in a nutshell that’s what’s going to be driving rates,’ Joel Kan, an economist with the Mortgage Bankers Association, told NextAdvisor.”
From the Agent Side
As a real estate agent, you also might be wondering how rising interest rates will change escrow services. In our opinion, the two biggest things to analyze and predict are (1) possible interest generation on escrow money if applicable and (2) the impact on property taxes and homeowners insurance payments.
During the buying and selling of a home or business, an escrow account is typically established with a mortgage service provider. This account is solidified upon the close on a home or building/property loan.
Throughout the life of the loan, each month a specific amount from your monthly mortgage payment is earmarked for the escrow account. This money serves to pay for things like property taxes and homeowners insurance throughout the term of the mortgage. Without an escrow account, a homeowner is responsible for monitoring and paying everything on their own without support.
An Important Note
It’s worth noting that if a loan is backed by the government like an FHA or USDA loan, many times setting up escrow services and an account is a requirement of that loan agreement.
When it comes to interest, money held in escrow may or may not generate interest, depending on the bank or service provider.
Depending on the situation, this might make non-escrow services more or less attractive. Individuals and businesses in many situations have the right to pull their money from an escrow account to gain interest and be fully responsible for their taxes and insurance.
Property taxes and homeowners insurance amounts can, and do, change from year to year as well.
The Impact of Rising Rates
Fixed mortgage rates may be constant. But it’s helpful to remember that rising interest rates directly impact the value of real estate property at all times.
This translates into a reality that the amount of money required for escrow year-to-year will be evaluated and re-determined by your escrow service provider annually. Too much money, and you’ll receive an escrow refund. But too little money, and home or business owners will need to cover the difference.
Get Help From Escrow Hub
Escrow Hub, Inc. is an independent escrow company out of Los Angeles, California, providing the following services:
- Commercial Escrow
- For Sale by Owner Escrows
- Residential Escrow
- Bank/REO Escrow
- Short Sale Escrow
- 1031 Exchange Escrow
Contact us to learn more about our escrow services and client offerings.