I know the basics of how this works...since i put 20% down, I can have the mortgage company set up the escrow account and I pay them monthly or i can pay my property taxes on my own in one lump sum......what are the pros and cons?? I'm trying to decide.
There are only two cons I am aware of. 1. They may charge a fee in order for you to NOT escrow. 2. Personal responsibility. If you are not responsible enough to be able to set aside (or have) money available for taxes and insurance, you'd want to escrow.
Escrow. You just need to stay on top of it at the end of the year if your taxes change. If your taxes get higher your Mortgage does too.
It's so much easier. At the end of the year when your taxes are to be paid, they tell you the difference in what they collected and what you have to submit. So you can pay the amount and your "mortgage" payment doesn't go up. It's so much simpler for me to come up with 80-100 bucks than it is to come up with 800+.
Yeah, but for me, I like to have my OWN "escrow" account. I pay my mortgage every month and add extra to an interesting-earning savings account, then pay my taxes and insurance in full out of it once a year. That way I earn the interest on it instead of the bank.
I wish I had not escrowed when I bought my current home - which was my first home purchase. I feel this way because I am extremely good at saving - and would rather have the monthly escrow money to invest how I see fit to get a better return. Unfortunately, I think I'm stuck in escrow unless I refinance my loan - which I haven't researched yet. Is this a factual statement? Is there a way to keep your loan terms and rates the same - but simply eliminate escrow? I've been meaning to research this but have not done so. It doesn't sound plausible to me - since it alters your original loan agreement.
There lies the answer to the original question. If you can't budget yourself and come up with the money at the end of the year then escrow. I myself rather keep my own money until the end. You also have the choice of paying 2 years of your tax in the same year and write it off together. ie. For 2008 pay tax in Jan 2009 and for 2009 pay tax in Dec 2009. In 2008 use standard deduction. In 2009, itemize.
Right now with interest rates so low, it probably makes some financial sense to escrow. When savings rates start going up, then the bank will make interest off of your money held in the escrow account. Even if the dollar amount is small, I hate for someone else to earn interest on my money. However, I think the cost to not escrow has become more expensive. A hidden potential problem with escrowing is that you do not control during which tax year you get to deduct the property tax payment. I almost always want the tax paid before December 31, but the bank may decide to wait until after January 1 to pay. If that happens, you do not get the tax deduction until a year later.
Thanks, i think i am going to go ahead and escrow....i did the calulations..i earn about $50 a year putting my money into an online savings account...didn't seem worth it to me.
Why not just have a savings account, and have it automatically deduct $100 a month just for it? It's $50 on top of the fees you could be saving. It seems pretty easy, but then again this is like telling people not to pay the minimum on their credit cards when many do anyways.
Say no to escrow, if you are smart with your money then put it in a savings account and earn interest every month.
If I could do it again, I would not escrow. Property taxes in Pennsylvania are high, so I pay about $450/month to my escrow. It would be great to have that in my savings each month, and get that interest. Plus, it frees up cash throughout the year, if there is something you need extra cash for in the short term, and then you can "repay" your savings later.
I find it ridiculous to pay interest for having someone to hold your money, banks pay people to hold their money in accounts.
If you escrow, keep in mind that the mortgage company has the right to determine the escrow requirements (taxes plus insurance) and add to that a two month buffer pursuant to RESPA. In other words... Taxes $2,000 Hazard $1,000 ----------------- Require $3,000 or $250.00 monthly They can add $500.00 to your escrow requirements to protect against a shortage later due to an increase in taxes or insurance costs. You now have to pay $3500 or $291.67 monthly.
