What Is A Suspense Balance?

A suspense balance refers to an amount of money that is temporarily held in a suspense account. Suspense accounts are commonly used by businesses, mortgage providers, and investors to hold funds for a specific period of time. Financial institutions and loan servicers often create suspense accounts for various reasons, such as managing business transactions, housing payments, or investment activities. It’s important to note that funds in a suspense account do not earn interest and will remain unchanged until the account balance reaches zero. On this page, we will provide you with valuable information about suspense accounts and their potential impact on your financial situation. Feel free to explore and learn more!

Types of Suspense Accounts

Did you know that suspense accounts can come in different forms in the financial industry? Let’s explore the various types below.

Business Suspense Account

A business suspense account is like a general ledger that helps clear up errors or discrepancies. For example, if a business makes a payment but enters the wrong account number, the funds may be placed in a suspense account until the issue is resolved. Other errors that can lead to a business suspense account include failing to specify the designated invoice for a payment, accounting errors, or overpaying. Once the issue is resolved, the funds will be distributed to the correct account, and the suspense account will be cleared. It’s a good practice for businesses to review any suspense account balances on a monthly or quarterly basis.

Suspense Balance for Partial Mortgage Payments

If you make partial mortgage payments, the mortgage servicer may create a suspense account. Let’s say you split your monthly payment in half; the first half will be placed in a suspense account until you complete the payment with the second installment later in the month.

Suspense Account vs. Escrow Account

An escrow account is different from a suspense account. Mortgage servicers set up escrow accounts when borrowers close on a mortgage. These accounts help cover specific homeowner expenses such as homeowners insurance and property tax.

Suspense Account vs. Clearing Account

While both clearing accounts and suspense accounts temporarily hold funds, suspense accounts are typically associated with financial uncertainty. A clearing account, on the other hand, holds funds temporarily while transferring costs or expenses from one account to another.

Investment Suspense Account

There are also suspense accounts used for brokerage and investing purposes. Investment suspense accounts temporarily hold funds during the completion of certain transactions. For example, if an investor needs to provide additional information for a transaction to be finalized, the funds they put towards the investment will be held in a suspense account. Similarly, if an investor withdraws funds from a stock but plans to reinvest them immediately, the money may be held in a suspense account during the withdrawal and redistribution process.

Can You Have a Suspense Balance With Any Type of Loan?

No, suspense accounts do not exist with every type of loan. For instance, if you fail to make a full payment on your online instant payday loan, the lender may not create a suspense account. Instead, they may label your account as delinquent and consider the payment as late when you pay the remaining balance for the month. When comparing a personal loan to a mortgage, a personal loan lender may not establish a suspense account, while a mortgage servicer typically will.

Why Do Mortgage Suspense Accounts Exist?

A mortgage suspense account exists for several reasons. Here is more information on why a loan servicer may use a suspense account:

Hold Partial Payments

For better financial organization and convenience, borrowers may choose to split their monthly home equity loan payment into two installments. When the first partial payment is made, the funds will be held in a suspense account until the second installment is paid later in the month. As long as the lender receives the full payment by the official due date, they are generally accommodating regarding partial payments. A lender may also place funds in a suspense account for incomplete payments. For example, if your monthly mortgage payment is $500, and you submit $450, the lender may place the $450 in a suspense account until you pay the remaining $50. You would then have until the mortgage payment’s due date to pay the remaining $50 to avoid any late fees or penalties.

Use a Suspense Account To Pay Ahead

Borrowers who want to pay off their mortgage quicker may choose to make multiple payments or additional partial payments each month. For instance, if you make a full payment plus a partial payment every month, you would essentially be making two payments every other month. This payment approach can help you save hundreds or thousands of dollars and pay off your home months or even years sooner than expected!

Mortgage Lender Error

Occasionally, loan servicers make mistakes. If you have made an additional payment that your loan servicer was unaware of, the mortgage servicer may put the extra monthly payment in a suspense account until they can determine where the funding was intended to go.

Do I Have a Suspense Account?

If you’re wondering whether you have a suspense account, don’t worry! Mortgage lenders are legally obligated to provide clear information about any suspense accounts or additional home buying costs. The Real Estate Settlement Procedures Act (enacted in 1975) ensures that mortgage companies disclose this information to borrowers. You’ll receive a monthly statement with detailed updates about your mortgage status, thanks to this legislation.

What’s Included in Monthly Loan Statements from Mortgage Servicers?

Your mortgage servicer will send you a monthly summary statement about your loan. You can choose between receiving these statements electronically or as a paper document via mail. Opting for electronic statements means you’ll get a monthly email and a notification on your online account when your most recent statement is available to view. Your statement will include the following information:

• Payment history: Shows the total amount you’ve paid so far.
• Fees: Lists any additional costs or fees associated with your loan.
• Suspense accounts: If a suspense account has been created, lenders are required to promptly notify you.
• Current balance: Indicates how much you still owe on your loan.
• Review of loan details: Your statement will also provide your interest rates and a breakdown of how those rates apply to your loan.

Tips to Avoid Suspense Balances

Would you like to prevent having a suspense balance? It’s important to ensure that you fill out any loan paperwork accurately. This includes providing your signatures, account numbers, and payment amounts as requested by the lender. By providing all the necessary information, you can be confident that your payments will be successfully processed and you won’t have to worry about having suspense accounts!

For more information, please visit: Real Estate Settlement Procedures Act | HUD.gov / U.S. Department of Housing and Urban Development (HUD)