Should I Escrow?
I escrow. I’m not what you call the type of person who likes to set aside money each month to pay my taxes and insurance in one big bill at the end of the year although after reading my own article I might change my mind.
The big question you have to ask yourself is if you’re the type of person who would rather have their money work for them, or if having extra money in your pocket each month will only make you spend it leaving you with a shortfall when your taxes and insurance become due.
You might be asking yourself, “What is escrow?
What I’m talking about in this article is setting up a mortgage escrow account. For those who don’t know, your mortgage payment is primarily comprised of Principal and Interest, but there’s also two other things called Taxes and Insurance. You will usually see those items referred to as the acronym PITI – Principal, Interest, Taxes and Insurance.
When you set up an Escrow account with a bank, it allows you to put money away monthly to pay off your big bills that are associated with home-ownership. The mortgage lenders maintain these accounts on your behalf. All YOU have to do is make payments into it each month along with your principal and interest payments. When your tax bill and home insurance payment becomes due, they (the lender) disburse the funds for you.
Lenders love having their borrowers start escrow accounts with them. For one, they make money off them. Since most states don’t require lenders to pay borrowers any interest on the money they hold on our behalf, then they can earn money off that cash during the few months that it sits in their bank just waiting until the day the tax bill and insurance bill becomes due.
Knowing this, wouldn’t you rather be making that extra cash yourself, instead of letting the bank make money off your hard earned money? You could earn a few extra dollars in interest by putting your money in a savings account that pays YOU the interest instead of the bank! You could also save on escrow account setup fees that some banks charge.
Are you ready to take charge and handle it yourself? If not, then let me tell you why having an escrow account can also benefit you.
If you’re the type who values your time and just doesn’t want to worry about paying taxes and insurance, then setting up an escrow account is for you. Customers with escrow accounts don’t have to worry about tracking tax and insurance bills because their lenders do it for them. All you have to do is pay your mortgage each month and forget about it.
It’s not like just anyone can waive setting up an escrow account. If you’ve made a small down payment or your loan-to value ratio is above 80 percent then some lenders require high-risk borrowers to establish escrow accounts — and many will suggest lower-risk customers establish them too — this is done to ensure that borrowers can pay their real estate tax and homeowners’ insurance bills when they come due.
So what’s it going to be? Like Shakespeare would have said if he was referring to Escrow in his play Hamlet – “To Escrow or not to Escrow? That is the question!”