Author Topic: First home - should I open up an escrow account?  (Read 856 times)

PerpetualWanderlust

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First home - should I open up an escrow account?
« on: May 19, 2017, 02:38:25 PM »
I've been given the option to either bundle up my mortgage, insurance, and tax payments into one monthly payment, or too keep them separate. The interest on the monthly payment will be 4.125 % if I bundle them, but it will be 4.25% if I pay the insurance and taxes myself. House was bought 20% down at 245k.

What say you? Should I pay the extra .125% to keep the tax and insurance under my control?

Thanks!

Duke03

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Re: First home - should I open up an escrow account?
« Reply #1 on: May 19, 2017, 03:00:11 PM »
I know a lot of banks will charge extra if you forgo the escrow, but I'd either negotiate that away or find another bank.  I escrowed one and only one time.  After the bank screwed it up three years in a row I refinanced to get rid of the stupid escrow account and haven't had one since.  I just put $500 a month aside in a savings account.  I can pay my own bills better than some stupid bank.

Proud Foot

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Re: First home - should I open up an escrow account?
« Reply #2 on: May 19, 2017, 03:04:37 PM »
Reading it as your mortgage being $196k the difference in interest is less than $245 for year 1 and will only go down.  So you would need to consider all the extras to decide.

1) How will you do the insurance and taxes? Will you be setting aside some each month or just paying it out of your income in the month due?
2) If paying out of your income in the month due will you be investing the difference each month?
3) If you are controlling the payments will you time the tax payments to double pay every other year to double up on the deduction for taxes? This would make a difference if doubling = itemizing vs not doubling =/= itemizing.

Many things to consider but based on the interest alone the difference is small enough I would just go with whatever is easiest.

MilesTeg

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Re: First home - should I open up an escrow account?
« Reply #3 on: May 19, 2017, 04:09:21 PM »
Unless you live in an area with high property taxes, it's probably not worth it. In my area the total escrow payments on that house (tax+insurance) would be about $2500, meaning you'd need a 10% ROI on any investment you put that escrow money into (assuming the best case scenario wherein you invest it all at the beginning of the tax year). If you are investing the deferred payments monthly, you'd need a significantly higher ROI to break even.

Scortius

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Re: First home - should I open up an escrow account?
« Reply #4 on: May 19, 2017, 04:42:31 PM »
Meh, in most cases the financial aspect will be of minimal importance.  Thus, it's really a decision of convenience.  I've never had a problem with my mortgage company missing an escrow payment and it's convenient to wrap everything up into a single payment so I'm happy with it.  If you want to track the money yourself and/or invest it to squeeze some extra gains from the cash then go ahead and do it yourself.  Otherwise I would say don't over think it and just roll it all together.

Duke03

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Re: First home - should I open up an escrow account?
« Reply #5 on: May 19, 2017, 08:42:44 PM »
Your mileage may very, but my first house was a new build and like all new builds the taxes are just screwy for the first couple years.  The first year my escrow account refunded me over $3,000.  I tried to tell them to keep the money because the next year they would be short if they didn't.  They insisted they knew how to calculate taxes and told me not to worry.  Yeah right.  The very next year my escrow was over $3600 short.  So my option was right a check or my house payment would go up over $400 a month to make up the difference and add a cushion.  This constant back and forth for several years made me decide to refi and never have an escrow account again.  Like I said.  I can pay my bills better than any corporate bank can.
« Last Edit: May 19, 2017, 08:59:23 PM by Duke03 »

Ebrat

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Re: First home - should I open up an escrow account?
« Reply #6 on: May 20, 2017, 05:11:06 AM »
My last bank screwed up my homeowners insurance payments two years in a row (leading to me having to call the insurance company and just pay the bill over the phone) and was generally frustrating to deal with. New bank is much better, but I'd still rather have control of the money myself.

It seems ridiculous to me that they're going to charge you $20/month to get to keep your own money until the bill is due.

TomTX

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Re: First home - should I open up an escrow account?
« Reply #7 on: May 20, 2017, 11:47:23 AM »
Your mileage may very, but my first house was a new build and like all new builds the taxes are just screwy for the first couple years.  The first year my escrow account refunded me over $3,000.  I tried to tell them to keep the money because the next year they would be short if they didn't.  They insisted they knew how to calculate taxes and told me not to worry.  Yeah right.  The very next year my escrow was over $3600 short.  So my option was right a check or my house payment would go up over $400 a month to make up the difference and add a cushion.  This constant back and forth for several years made me decide to refi and never have an escrow account again.  Like I said.  I can pay my bills better than any corporate bank can.

I had that bullshit for my first house - not even new build. Wildly varying estimates, payment changed every year and every year I would either get a refund check, or they would want me to write them a check.

Eff That.

Current house, I paid something like $50 to skip escrow. When I refinanced, I paid nothing to skip escrow. Paying extra interest for the life of the loan is bullshit. Find a better lender.

Systems101

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Re: First home - should I open up an escrow account?
« Reply #8 on: May 20, 2017, 04:17:15 PM »
I would recommend avoiding, and have always done whatever is required in the purchase to avoid it... but be aware that the banks like it.  They feel it reduces their risk.

Having said that, in my own family, I've seen the banks do everything from missing insurance payments to making tax payments in weird years (meaning 2x in one year, zero the following - which messed with itemized deductions), and a few other issues. 

Personally, on my current house, after the servicing was sold twice, the last company kept sending a whole slew of threatening letters about changing my payment and escrow and how I'm violating the terms of my mortgage, et al.  It took me weeks and multiple phone calls (along with a threat to send them the signed copy of my mortgage escrow waiver) for them to even check the paperwork and validate that I don't have to pay escrow.  So the pain can happen regardless of which side of the escrow line you are on...

The other reason I like it is that it stabilizes the payment.  If I don't like having the mortgage company draft my payment, I can put it in my bank's bill pay and never have to change the amount.  With escrow paying property taxes and insurance, it would bounce all over the place and require maintenance on my part.

L.A.S.

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Re: First home - should I open up an escrow account?
« Reply #9 on: May 20, 2017, 04:28:24 PM »
Talk to other homeowners in your area.  If there is a history of banks screwing up paying the property taxes and insurance on behalf of the homeowner then you might have less of a headache if you just budget and set the money aside yourself.  If you go this route just make sure that the insurance company and municipal taxing authority know to bill you instead of the bank. 

I've always just told my lender that I refuse to have an escrow set up on my loans and that I'll be taking care of paying the bills that I am responsible for.  Eventually they just do it my way since its not worth the fight.  I've heard from other people that the amount you pay still bounces around since the bank has trouble gauging how much the taxes and insurance will go up from one year to the next, and they usually require a 6-month buffer.   

Also, the bank saying that it costs more to not have an escrow is most likely baloney.  This is probably just to entice you to do it their way.  Just tell them you want 4 and 1/8 and no escrow and see what they do.  Within a certain range everything is pretty much negotiable. 

I've also heard of people canceling the escrow after the sale and mortgage are in place.  You might see if that is an option as well.  However, get it in writing that this is possible if you want to go that way.

RedwoodDreams

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Re: First home - should I open up an escrow account?
« Reply #10 on: May 20, 2017, 05:25:27 PM »
I've never had an escrow account. I like doing my own paying, and if homeowner's insurance is bundled in there, it reduces your flexibility in easily shopping around for cheaper insurance, for example. (It could be done but you'd have the hassle of updating payee with the bank, etc.)

I also like being able to pay for insurance annually using a credit card to get the rewards, and big payments like property taxes can help with credit card churning spend levels too if you're a churner.

TomTX

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Re: First home - should I open up an escrow account?
« Reply #11 on: May 20, 2017, 07:34:21 PM »
I've never had an escrow account. I like doing my own paying, and if homeowner's insurance is bundled in there, it reduces your flexibility in easily shopping around for cheaper insurance, for example. (It could be done but you'd have the hassle of updating payee with the bank, etc.)

I also like being able to pay for insurance annually using a credit card to get the rewards, and big payments like property taxes can help with credit card churning spend levels too if you're a churner.

Yeah, we have used property tax for min spend on fancy cards the past 2 years. I also used to double-stack property tax for itemizing federal income tax deductions (ie, pay 2017 in January when it's due, pay 2018 in December 2017 a few weeks before it's actually due)

respond2u

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Re: First home - should I open up an escrow account?
« Reply #12 on: May 20, 2017, 08:51:44 PM »
I've never had an escrow account. I like doing my own paying, and if homeowner's insurance is bundled in there, it reduces your flexibility in easily shopping around for cheaper insurance, for example. (It could be done but you'd have the hassle of updating payee with the bank, etc.)

I also like being able to pay for insurance annually using a credit card to get the rewards, and big payments like property taxes can help with credit card churning spend levels too if you're a churner.

Yeah, we have used property tax for min spend on fancy cards the past 2 years. I also used to double-stack property tax for itemizing federal income tax deductions (ie, pay 2017 in January when it's due, pay 2018 in December 2017 a few weeks before it's actually due)

I wish this forum had a +1 option. I was going to advise seeing what double-stacking your property taxes saves you and make the right financial decision based on whether you can manage the extra trouble.

seattlecyclone

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Re: First home - should I open up an escrow account?
« Reply #13 on: May 21, 2017, 10:10:54 AM »
I prefer having control myself, but I just chose the escrow account when buying a house this year. The lower interest rate seems worth tying up a small amount of cash, and the loan officer I was speaking to said that they'll usually just remove the escrow account on request after a couple years of on-time payments anyway. Seems they don't really like having to deal with your county property tax and insurance company very much.
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nottoolatetostart

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Re: First home - should I open up an escrow account?
« Reply #14 on: May 22, 2017, 02:55:53 AM »
I have not had escrow for about 11 years now. Back then, my mortgage payment was always changing because they were updating the projections so I felt like I got letters in the mail giving me new payment amount. It never made sense. Also, I am so type A that I remember checking county website every day at work to make sure my taxes were paid each time those due dates came near. Annoying amount of mental energy used.

Lately, previous servicers allowed us to opt out for no charge because we had more than 20% equity. It was a requirement for us that we had to be able to not escrow when picking lender. My last refi I just negoitated no fee to avoid escrow (otherwise would have been .25% of lending amount. Life is just easier knowing I paid our taxes and insurance. Plus I get credit card points for paying our homeowners insurance on credit card. :0)