Benefits of Netting Escrow

Netting a borrower’s escrow during refinancing can make the process quicker. Instead of paying the new escrow amount out of pocket, a borrower can net, or apply the escrow balance from the original loan, using these funds to cover the difference for the new escrow account.

Depending on the available balance, netting escrow will either decrease or eliminate a borrower’s need to produce cash for setting up a new escrow account.

Why Don’t More Clients Net Escrows?

If the new loan has different terms than the existing one, this can confuse borrowers. For example, if an old escrow account had a $2,000 balance and the refinanced escrow required $3,500, borrowers would still need to bring $1,500 to closing if it’s not added to the refinanced loan amount.

Also, net escrow discounts do not occur until a payoff is ordered, so it’s usually the last thing to happen when closing a refi. Also, a reimbursement check may be more appealing in a short-term sense.

This chart uses the hypothetical example of having a principal balance of $120,000, a refinanced escrow of $3,500, and an “old” escrow of $2,500.