What to do when your homeowners insurance company sends you a refund check

In this article: 

• Why homeowners insurance companies issue refund checks 
• Why these refund checks matter when you have an escrow account 
• What to do when you receive a check 
• How refund checks can affect your mortgage payment 

Receiving a refund check from your homeowners insurance company can feel like an unexpected bonus. But when you have a mortgage with an escrow account, that refund plays an important role in keeping your escrow balance accurate. Many homeowners aren’t sure what to do with these checks, especially if they recently changed insurance companies or renewed their policy. 

This guide explains why insurance refunds happen, what you should do with the check and how to make sure your escrow account stays in balance as a Desert Financial member. 

Why homeowners insurance companies issue refund checks 

Refund checks are more common than many homeowners realize. Insurance companies may send a refund for several reasons: 

Your policy was canceled mid-term. If you switch insurance providers, cancel your policy or replace it with new coverage, your old insurer typically refunds the unused portion of the premium. 

Your premium was adjusted. If your homeowners insurance premium is recalculated after your policy begins, you may receive a partial refund. 

You made changes to your coverage. Reducing coverage, raising your deductible or updating safety features may lower your premium. 

Your mortgage company overpaid the insurer. If your insurance company receives more money than required, they may issue a refund to you rather than returning it to the lender. 

In most situations, the insurance company sends the refund directly to the homeowner, not the lender. This is where confusion often begins. 

Why these refund checks matter when you have an escrow account 

Your escrow account collects money each month to pay your property taxes and homeowners insurance. When you switch or update insurance coverage, the escrow account may no longer match the actual cost of your new premium. 

If you keep the refund instead of depositing it back into your escrow account, your escrow balance may no longer be sufficient to pay your future insurance bills. This can lead to: 

• An escrow shortage
• A higher monthly mortgage payment
• A potential negative balance or deficiency
• Additional adjustments on your annual escrow analysis 

Depositing the refund into your escrow account helps keep everything in balance. 

What you should do when you receive the refund check 

Here are the steps to follow to make sure your escrow account stays correct. 

Step 1: Confirm the reason for the refund. Review the letter or statement included with the check. Most insurers clearly explain whether the refund is due to: 

• Canceling your policy
• Switching insurers
• A premium adjustment
• A policy change
• Overpayment

Step 2: Determine if the refund should go into your escrow account. If your mortgage includes escrow and the refund relates to your homeowners insurance premium, the refund almost always belongs back in your escrow account. This includes situations where: 

• You switched insurance companies.
• Your policy was canceled.
• Your new premium is lower.
• Your renewal adjustment triggered a refund.
• The insurance company returned excess funds.

If the refund is unrelated to insurance premiums (for example, a claim settlement), it does not have to be deposited into escrow. 

Step 3: Deposit the check into your escrow account. Contact Desert Financial Mortgage Servicing for instructions on how to submit the check for escrow deposit. Most deposits can be made by mailing the check, bringing it to a branch or sending it directly to the servicing department. 

Depositing the refund helps keep your escrow account accurate and prevent future shortages. 

Step 4: Notify Desert Financial if you changed insurance providers: If you recently switched insurance companies, be sure to send your new declarations page to Desert Financial so your escrow account reflects the correct premium. This helps ensure: 

• Your future payments are calculated correctly.
• Your escrow analysisremainsaccurate. 
• You avoid unnecessary shortages or deficiencies.

Why you should avoid keeping the refund for personal use 

Many homeowners assume the refund is “extra money” and use it for other expenses. Unfortunately, this almost always results in an escrow shortage during the next annual analysis. If the refund is not deposited into escrow: 

• The escrow account is now missing funds.
• Your next analysis will show a shortage.
• Your monthly payment may increase.
• You may be required to pay the shortage over 12 months (or in a lump sum). 

Depositing the refund prevents future issues. 

What happens if you have already spent the refund? 

If you used the refund before realizing it should have gone into escrow, you still have options. 

• You can make a direct payment to your escrow account to restore the balance.
• You can wait for the next annual analysis and pay the shortage at that time.
•  You can spread the shortage over 12 months as part of your mortgage payment.

Desert Financial can help explain which approach is best for your situation. 

How refund checks can affect your mortgage payment 

Insurance refunds and changes in coverage can directly affect your escrow account and your mortgage payment. Depending on your new premium, your payment may: 

• Increase
• Decrease
• Remain the same

Your annual escrow analysis will show exactly how the change impacts your payment for the year ahead. Even if you deposit the refund, your monthly payment may still be adjusted based on the updated premium amount. 

How to avoid issues with insurance refunds in the future 

To reduce confusion and maintain a healthy escrow account: 

• Notify Desert Financial whenever you switch insurance providers. This helps ensure bills are paid correctly from escrow. 
• Forward your new declarations page as soon as possible. This keeps your escrow calculations accurate. 
• Ask your insurance agent to send documents directly to your lender. This reduces delays or missing information. 
• Deposit all premium-related refunds into your escrow account. This prevents shortages when the next bill is due. 
• Keep written copies of policy change confirmations. This helps track the timing and amounts of refunds. 

Following these steps can help keep your escrow account stable. 

When to contact Desert Financial 

We’re always here to support you with clear answers and member-first service. Contact Mortgage Servicing right away at (602) 433-7097 or firstmortgageservicing@desertfinancial.com if: 

• You received a refund check and aren’t sure why. 
• Your insurance company shows a different premium than your escrow statement.
• You changed insurers and want to update your loan.
• You suspect your escrow account may be incorrect.
• You want help depositing a refund check.