What Is A Mortgage “Suspense” Account?

John Ulzheimer

John Ulzheimer | Blog

Mar 11, 2014 | Updated May 08, 2019

Credit Card Insider receives compensation from advertisers whose products may be mentioned on this page. Advertiser relationships do not affect card evaluations. Advertising partners do not edit or endorse our editorial content. Content is accurate to the best of our knowledge when it's published. Learn more in our Editorial Guidelines.

Unless you work in the mortgage industry or the credit industry, you probably have no idea how to answer the question, “what is a mortgage suspense account?” If you do know how to answer the question, then you probably have a pretty unpleasant story to tell regarding how you personally learned the answer.

Check out our article to see whether paying your mortgage payments with a credit card is worth it.

How A “Suspense” Account Starts

Suspense accounts begin when a borrower makes a partial payment to their mortgage company. When you make a partial mortgage payment the lender will actually hold the funds in a suspense account and none of the funds will be applied to your loan balance.

The following month, if the borrower makes another partial payment, then the new funds are added to the suspense account as well. If there are enough funds to pay the full payment from the previous month, those funds will be removed from the suspense account and applied to the mortgage.

Any leftover over balance remains in the suspense account and the loan is still considered 30 days behind. If the borrower continues to make partial payments each month then this process is repeated over and over again. Eventually, it will lead to late payments showing up on your credit report – possibly every single month – because you’ll be 30 days late in perpetuity.

Here’s an example, a more visual example, to better illustrate how a suspense account actually works:

  • John Doe owes a $1,000 mortgage payment to ABC Bank on March 1st.
  • John pays $800 to ABC Bank, $200 short of a full payment.
  • ABC bank does not apply the partial payment, but rather puts the $800 into a suspense account.
  • The following month, John Doe owes another $800 for April plus March’s payment plus a late fee.
  • ABC Bank reports a 30 day late payment to the credit bureaus on John’s account.
  • John pays $800 to ABC Bank, which means he now has $1,600 in his suspense account, ~$1,000 is used to make his March payment.
  • The process continues to repeat every month as long as John makes a partial payment.

Common Causes Of A Suspense Account

To put it simply, a suspense account is typically set up by a mortgage company when a borrower sends in a partial payment instead of the full amount owed. Partial payments will eventually lead to rolling 30 day late payments on the borrower’s credit report.

Often, it is an honest mistake which causes a borrower to pay a partial payment. Regardless, a suspense account is set up when a partial payment is received for any reason – accident, stubbornness, financial shortage, etc. The following are the most common causes of a mortgage suspense account.

1. Escrow Shortage

If a borrower’s monthly escrow payment is increased, due to higher than anticipated taxes or insurance premiums, then the total monthly payment the borrower owes to the mortgage company is increased as well.

For example, if a borrower formerly paid $850 per month, but the mortgage company had to pay higher than planned for taxes from the borrower’s escrow account; the mortgage company could increase the monthly payment.

Let’s say that the borrower’s payment was increased to $975 per month for this example. The payment is increased in order to recoup the extra money the mortgage company paid for real estate taxes and in order to collect enough money for taxes the following year.

However, if the borrower continued to pay only $850 instead of the new monthly payment of $975 then a suspense account would be set up and rolling late payments would follow shortly thereafter.

2. Increased Interest Rate

If your mortgage does not have a fixed rate, which means that the interest rate you pay is subject to change, then your monthly payment could potentially increase in the future.

Just like the example above with the escrow account, if the mortgage company increases your monthly payment due to a higher interest rate then you will have to pay the new payment amount or suffer very negative credit score consequences and late fees.

Was this helpful?

The responses below are not provided or commissioned by bank advertisers. Responses have not been reviewed, approved or otherwise endorsed by bank advertisers. It is not the bank advertisers' responsibility to ensure all posts and/or questions are answered.

  • Linda

    Can your servicer take the money out of your suspense account and apply it to late fees or any other fees they see fit to pay or does it all have to stay to be used as a payment/

    • John Ganotis

      I am guessing the answer is “no,” but that could depend on the terms of your contract with your lender.

The Insider

Susan Shain
6 Best Credit Cards for International Travel
Susan Shain | Aug 16, 2019

Heading abroad soon? Then check out this list of the six best credit cards for international travel — they'll have you traveling in style in no time.

Read More
Sean Messier
How to Build Credit: 5 Ways to Increase Your Credit Scores
Sean Messier | Aug 15, 2019

Using a credit card is far from the only way to build credit. Here, we explore several ways to establish, repair, and improve your credit scores.

Read More
Sean Messier
What Happens If You Don’t Activate a Credit Card?
Sean Messier | Aug 12, 2019

Even if you didn't activate a new credit card, the account is probably open and affecting your credit scores. Read this to learn what to do next.

Read More