A suspense balance is an amount of money held in a suspense account. Suspense accounts temporarily hold funds typically for business, mortgage, or investment purposes.
A financial institution or loan servicer may create a suspense account for several reasons. Whether it be for business, housing, or investing reasons, suspense accounts all serve the purpose of holding funds for a limited period of time. A suspense account also does not earn interest over time. Any funds in a suspense account will remain as is until the account zeroes out.
Here, you will learn all about suspense accounts and how they can affect your finances.
Types of Suspense Accounts
Suspense accounts aren’t limited to just one type of funding. Below is more information on the different kinds of suspense accounts you may come across in the financial industry.
Business Suspense Account
Suspense accounts that exist for business purposes are usually a general ledger containing potential errors or discrepancies that need clearing up. For example, say a business made a payment but did not enter the correct account number. In that case, the lender may put the funds in a suspense account until the account number issue is rectified.
Other errors that may result in a business suspense account are:
- Failing to specify which invoice a payment is designated for.
- Accounting errors.
- Overpaying.
Once the issue that resulted in the suspense account is resolved, the balance will be distributed to the appropriate account, and the suspense account will be cleared out. As a best practice, businesses should look into any suspense account balances they may be holding on a monthly or quarterly basis.
Suspense Balance for Partial Mortgage Payments
A mortgage servicer may create a suspense account for a borrower who makes partial mortgage payments. Suppose a borrower wanted to split their monthly mortgage payment in half. In that case, the mortgage servicer would put the first half of the payment in a suspense account until the borrower completes the payment with their second installment later that month.
Suspense Account vs. Escrow Account
An escrow account is set up by mortgage servicers when a borrower closes on a mortgage. Borrowers can then deposit part of their mortgage payment in their escrow account to cover certain homeowner expenses. Some costs covered through an escrow account may be:
- Homeowners insurance.
- Property tax.
Suspense Account vs. Clearing Account
A clearing account holds funding temporarily while costs or expenses are in the process of being transferred from one account to another. While both clearing accounts and suspense accounts hold funds for a limited amount of time, suspense accounts typically exist more because of some kind of financial uncertainty.
Investment Suspense Account
There are also suspense accounts used for brokerage and investing purposes. Investment suspense accounts hold funds temporarily during the completion of certain transactions. For example, if an investor needed to provide additional information in order for a transaction to be finalized, any funds they put towards their investment would be held in a suspense account. Or, say, an investor withdraws funds from a particular stock but intends on reinvesting that money right away. In that case, the funding may be held in a suspense account while the withdrawal and redistribute transactions are being finalized.
Can You Have a Suspense Balance With Any Type of Loan?
No, suspense accounts may not exist with every type of loan. For example, if you fail to make a full payment on your instant payday loan online, the lender may not create a suspense account for you. Instead, they may just label your account as delinquent and count the payment as late when you pay the remaining monthly balance.
When it comes to a personal loan vs. a mortgage, a lender for a personal loan may not create a suspense account, while a mortgage servicer typically will.
Why Do Mortgage Suspense Accounts Exist?
A mortgage suspense account may exist for a few different reasons. Below is more information on why a loan servicer may put funding into a suspense account.
Hold Partial Payments
For financial organization and convenience, borrowers may choose to split up the monthly payment for their home equity loan into two installments. When a borrower makes their first partial payment, the funds will be held in a suspense account until they make their second installment later that month. As long as the lender gets their full payment by the official due date, they are usually pretty easy to work with regarding making partial payments.
A lender may also put funds in a suspense account for incomplete payments. For example, say your monthly mortgage payment was $500, and you submitted $450. In that case, the lender may put 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
To pay off a mortgage quicker, borrowers may choose to make multiple payments or additional partial payments each month. For example, say you make a full payment plus a partial payment each month on your mortgage. In that case, you would essentially be making two payments every other month. Paying off your mortgage in this way can help you save hundreds or thousands of dollars! In addition, this payment method can help you pay off your home months or even years sooner than expected!
Mortgage Lender Error
Sometimes loan servicers make mistakes. Perhaps you made an additional payment your loan servicer wasn’t aware of. In this case, the mortgage servicer may put that extra monthly payment in a suspense account until they can finalize where the funding was supposed to go.
How Do I Know if I Have A Suspense Account?
Mortgage lenders must be extremely clear and explicit about any suspense accounts their borrowers may have. The Real Estate Settlement Procedures Act, enacted in 1975, help keeps mortgage lenders in check about disclosing suspense accounts or other home buying costs. Under this legislation, mortgage companies must give their borrowers a monthly statement with detailed information regarding their mortgage status.
What Information Do Mortgage Servicers Include on Monthly Loan Statements?
Each month your mortgage servicer will send you a monthly summary statement regarding your loan. You can choose to receive these statements virtually or via a paper document in the mail. If you choose to receive your statements virtually, you should receive a monthly email, as well as a notification reminder on your online account when your most current statement is ready to be viewed.
Information you may find on your statement is:
- Payment history: How much the borrower has paid to date.
- Fees: Any fees or additional costs the borrower has accumulated over the life of their loan.
- Suspense accounts: If a suspense account has been created, lenders are required to notify the affected borrower promptly.
- Current balance: How much the borrower has left until they have paid off their loan.
- Review of loan details: Your monthly statements will also include your interest rates and a breakdown of how the rates are applied to your loan.
The Bottom Line: Suspense Balances
Want to avoid getting a suspense balance? In that case, it is vital to make sure you are filling out any loan paperwork you have correctly. Signatures, account numbers, and payment amounts are all something a lender may need in order to complete a payment successfully. Give your lender everything they need in order to put your payment through and you shouldn’t have to worry about suspense accounts at all!
References:
Real Estate Settlement Procedures Act | HUD.gov / U.S. Department of Housing and Urban Development (HUD)
