An escrow advance is a payment made by your mortgage lender on your behalf to cover immediate property-related expenses such as homeowner’s insurance, property taxes, and similar fees when your escrow account does not have sufficient funds. This typically happens during the refinancing process of a mortgage, where your old escrow account is closed and a new one is established. The escrow advance bridges the gap between closing the old account and setting up the new one, ensuring that these important payments are made on time to avoid penalties or missed payments
. In essence, an escrow advance acts as a temporary prepayment option provided by the lender to cover costs normally paid through the escrow account. It helps maintain continuity in payments during transitions like refinancing or when there is a shortfall in escrow funds. However, receiving an escrow advance usually means your monthly mortgage payments will increase to repay the lender for these advanced amounts
. Legally, an escrow advance is defined as an upfront payment made by a servicing entity (the lender or loan servicer) to cover mortgage-associated costs such as real estate taxes and insurance premiums when the borrower’s escrow account is short on funds. The lender can later recover this amount from the borrower through increased monthly payments or lump sum repayment
. In summary:
- An escrow advance covers property taxes, insurance, and other escrow-related expenses when escrow funds are insufficient.
- It is commonly used during mortgage refinancing to cover expenses during escrow account transitions.
- The lender advances these payments to avoid missed deadlines and penalties.
- The borrower repays the escrow advance over time, often through higher monthly mortgage payments.
This mechanism ensures smooth handling of property-related expenses without interruption during refinancing or escrow shortfalls
