Escrow for Taxes & Insurace & Mortage

[lazarru]

We've just purchase a new house and received a bill for the 1st year of our home insurance. When I called both the insurance & mortage company I found out that mortage typically will not pay the 1st year of home owners, yet when I closed they took 4 months worth of payments from me. When I talked with the mortage company I said "well what am I really getting by paying escrow, your holding my money and I'm not seeing any interest" Her reply was "well we don't get any interest from it either" So first of all that makes no sense, I carry an average balance in escrow of about 4,000 and nobody is seeing any interest from that?

So this has all lead me to believe, why am I'm using them for escrow, I can just setup my own account, place the same 900 a month that they are charging me into it and pay the mortage & taxes when they come due. It's not like it's really hard to pay 2 bills and since I've got everything scheduled anyway really it's just making sure the money is there. I know it's not much that I'm getting in interest on a month by month basis, but add it up over the life of the mortage and it's a disney trip.

Is there anything i'm missing about dropping the escrow and paying myself? Anyone else do this and anything that I need to look out for?

Thanks

 

[pearlieq]

It's funny you should post this today, since I just got off the phone with my mortgage company less than 30 minutes ago! We decided to dump the escrow and save the money ourselves. I'll just stick the equivalent in my ING account every month, and at least get something for it. Also, I can make my own estimates of my tax increases, instead of just accepting what the lender charges us.

The only downside I can see is perhaps some people might not be disciplined enough to put away the money every month, NO EXCEPTIONS, or to correctly estimate how much their taxes will go up each year. Also folks would need to be sure to stay on top of homeowners policies (making sure coverage doesn't lapse, shopping for the best quotes, etc.).

 

[imsayin]

Is there anything i'm missing about dropping the escrow and paying myself? Anyone else do this and anything that I need to look out for?

I take care of my own taxes/insurance. I was sick of the increases in my mortgage payments & the "send us this money now" because they didn't compute the escrow properly. I just make sure I pad my account so that I'm not short when the property taxes go up. I think there are certain loans that may require you to use their bank for escrow, but I'm not sure what the parameters would be for that (just think I heard it at one time).

 

[Vivianne]

I found out it really pays to review your homeowners insurance from time to time. Our insurance company (homeowners) dropped us because they are no longer writing homeowner's coverage for our state. We're now covered with another company and are paying half of what we were paying before. In the long run, the previous company did us a favor.

 

[bellarella]

We have never used an escrow account. We keep the money ourselves and pay the bills as they come due. Escrow accounts are a real pain IMHO, in addition to "springing" things on you, I have heard too many stories where things have gotten screwed up and payments have not been paid out properly, espeically when/if your loan gets sold. I'm pretty much a control freak and it takes me less time to pay my own bills rather than chase after my mortgage company to make sure they did their job. Not to mention, you do lose all the interest the money could be earning.

 

[thompson princesses]

These are all valid reasons for dropping your escrow but your bank or mortgage company may not allow you to do so unless you have at least 20% equity in the home. In some cases they may make you prove you have at least that much equity by an SEV or Appraisal. I don't know your situation but I thought I would let you know. Good Luck! ~Barb~

 

[DisneyWatchMan]

If you have an FHA or VA mortgage you are required to have an escrow account for your taxes and insurance. If you have a conventional mortgage, you can ask your lender if you can waive your escrow. The lender does not earn interest on the funds deposited into the escrow account because they are not allowed to use the funds for any other purpose than to pay your taxes and insurance. They cannot lend the monies in the escrow account nor can they buy any investments with those funds. An escrow account is an account that is held by the bank or lender specifically for the benefit of another (you) for the payment of your taxes and insurance.

Loans that have escrow accounts are worth more to a lender that loans that do not have escrow accounts. The servicing value of a mortgage with escrow accounts can be sold for to an investor for more than a mortgage without an escrow account. Usually this value is worth about $250 per $100,000 mortgage.

The investor that buys a mortgage on the secondary mortgge market feels more comfortable if a loan has an escrow because the lender is collecting the monies for the taxes and insurance and therefore the chances that the insurance will lapse or the taxes go unpaid and a tax lien or unisured loss will occur is less likely.

In most cases when the taxes go up and there is a shortage in your escrow, the lender will pay the higher tax bill, and increase your monthly escrow payment by 1/12th every month. If your taxes increased significantly, the lender would be giving you an interest free loan of the shortage with a year to bring it current.

If you are liquid enough to have at least a 2 month cushion of taxes and insurance in addition to the 1/12 of the annual tax and insurance bill, you should be ok paying them yourself. If however you are not able to save this on a regular basis, go with the escrow account.

 

[lovetheparks]

I just did this very thing on Friday. I set up a recurring withdrawl into my ING account. I figured this way, I'll know when it was paid and I'll be gaining interest on my money.

One note - she did say she was "reviewing" my account to see if I was late, etc. Apparently she was talking out loud but when I questioned it she said she was going down her checklist. Perhaps they require you to be in escrow for a certain amount of time. For us, the end of this month is 2 years and we never pay late so all was well.

 

[Muushka]

The last time a mistake was made with our tax escrow was the last time we left it up to the mortgage company to make the payments. They 'neglected' to pay the tax bill on time and we were charged the penalty for the late charges. We fought that and won and got them to allow us to make our own tax plus insurance payments. That was 14 years ago. We have had about 4 different mortgages and we make all our own tax and ins payments.