Let’s dive into netting escrows when you refinance. If you’ve got an escrow account and you’re about to refinance, this could be relevant to you. If you don’t have an escrow account, well, this probably isn’t going to apply, so feel free to check out some of our other helpful videos or posts.
Now, if you do have an escrow account and are looking to refinance, let’s break down what netting escrows is—and why it doesn’t happen very often. I’ll explain the nitty-gritty so you understand why most people don’t go this route.
What Is Netting Escrows?
In a typical refinance, the money in your escrow account (which you’ve been paying into for taxes and insurance) gets refunded to you after closing. Usually, you get this refund within 30 days, but it could take longer—sometimes 45 or 60 days—depending on the servicer.
Netting escrows is when, instead of getting that refund back, you tell the lender, “Hey, don’t give me the escrow refund. Just use it to pay down my new loan balance.” Essentially, it skips the step where you get a check for the escrow balance.
Here’s how it works:
- Rather than getting the escrow money back after closing, you apply it directly to reduce your mortgage balance.
- Then, you roll the cost of the new escrow account into your new loan.
- This keeps the escrow money tied up in the mortgage process instead of handing it over to you as a refund. It sounds convenient, right?
Well, it’s not as common as you’d think, and here’s why.
Why Isn’t Netting Escrows Common?
Honestly, netting escrows is rare, and the reason is simple: it comes down to trust and timing.
Let’s say your current loan is serviced by Mortgage Company X, and you’re refinancing with us at Mortgage Mark. Here’s what has to happen for netting escrows to work:
- We close your new loan, and Mortgage Company X needs to send you a refund for the escrow balance on the old loan.
- You then take that refund check—let’s say it’s $7,000—and send it over to us at Mortgage Mark so we can apply it to your new loan balance.
Now, here’s where it gets tricky. We, as a lender, have to trust that:
- Mortgage Company X will send the refund check in a timely manner.
- You, as the borrower, will receive that check and send it back to us promptly.
As much as we love you and know you’re a responsible borrower, that’s a lot of faith to put in two different parties—the old servicer and you, the homeowner—to handle this efficiently. Plus, the clock is ticking. We need that escrow money to settle everything on time so we can finalize your loan and sell it to Fannie Mae, Freddie Mac, or Ginnie Mae.
The Real-Life Problem with Netting Escrows
Let’s be honest: in real life, this process rarely happens smoothly. I’ve been in the mortgage business for over two decades, and I’ve seen netting escrows work maybe once. The timing rarely lines up, and most lenders simply don’t want to deal with the hassle.
Even though you’re supposed to get that escrow refund, waiting for Mortgage Company X to send it and then trusting that you’ll immediately forward it to us isn’t always reality. And because this process can delay things, it’s just not common practice in the industry.
Can You Net Escrows with the Same Servicer?
Now, if you’re refinancing with your current mortgage servicer—let’s call them Company X—things get a little easier. In this case, everything stays in-house, and netting escrows becomes a bit more manageable because it’s just an internal transfer within their system.
But here’s the catch: mortgage servicers are not always great at offering competitive refinance options. A lot of servicers focus mainly on servicing existing loans rather than originating new ones, so the rates, products, or service you get might not be the best.
While they might be willing to net escrows because it’s easier for them to handle internally, you could end up sacrificing better terms you’d find with another lender. You need to weigh whether the convenience of staying with your current servicer outweighs the potential savings of refinancing with a new lender.
Why Most Refinances Don’t Net Escrows
Most refinances happen without netting escrows, and here’s why:
- Timing issues between the old servicer and the new lender.
- The borrower often wants the refund check to use for other things—whether that’s paying down debt, making home improvements, or covering other costs.
It’s just easier for the mortgage process to go smoothly when we don’t have to wait for escrow refunds to be sent back and forth between multiple parties.
That said, if you’re thinking about netting escrows, give us a call. We can walk you through the process and see if it’s even an option in your situation.
The Bottom Line: Is Netting Escrows Right for You?
Netting escrows in a refinance can sound like a smart way to reduce your loan balance, but in reality, it’s rarely done. The timing, the need for multiple parties to act quickly, and the trust factor all make it difficult to pull off.
Most people would rather just get their escrow refund and either roll the cost of the new escrow account into the loan or use the refund for something else. But now that you know what netting escrows is, at least you’re equipped to ask about it if you think it could work for your situation.
Questions? Let’s Chat.
As always, if you’ve got questions about netting escrows or anything else related to your refinance, feel free to reach out to us at Mortgage Mark. We’re happy to explain the process in more detail and see what works best for you.
And remember, when you think mortgage, think Mark!
Mark Pfeiffer
Branch Manager
Loan Officer, NMLS # 729612
(972) 829-8639
MortgageMark@MortgageMark.com