When you purchase a home and use a mortgage loan to finance that purchase, you will likely encounter several unfamiliar terms. Mortgage suspense is such a term. It does not mean you must remain in suspense regarding what happens to your payment. Instead, the term "suspense" refers to amounts your lender holds in escrow.
When referring to a mortgage, suspense refers to a balance or an account that holds funds in escrow on your behalf as the borrower. It is a catch-all account used to temporarily hold your mortgage-related funds until your mortgage lender or servicing firm decides how to apply or allocate those funds, such as making your property tax and homeowners insurance payments. The suspense balance refers to the amounts held in a suspense account. The term "suspense" originates from the fact that your lender holds these funds in suspense --- think "suspended in the air" -- until it applies them.
The most common use for a suspense account is for partial payments. If you make a partial payment, the suspense account will hold your payment until you send in the rest. Once a full payment is available, your mortgage lender will remove the funds from the suspense account and apply them to your mortgage.
Overpayments and Defaults
Your mortgage lender may use a suspense account for other reasons. It may hold any refunds received from your homeowners insurance provider for overpayment of insurance or refunds from your city or county for overpaid real estate taxes. Your lender may eventually reduce your monthly escrow amount and apply these funds to your escrow funds. If you fall behind on your mortgage payments and attempt to catch up, and your lender disputes the amount you submitted, it may hold the funds in a suspense account until you resolve the dispute.
If you dispute any amount shown for your mortgage and escrow payments, do not adjust your payment amount to remove the disputed amount. If you do this, your lender or mortgage servicing firm may deem your payment a partial payment and place it in a suspense account until it receives full payment. Your lender may then charge you late fees or even claim you defaulted on your mortgage. In addition, because a suspense account has multiple uses, if you cannot determine why you have a suspense balance on your account, contact your mortgage lender to ask why.
Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania.