Author Topic: Get rid of Mortgage Escrow?  (Read 5135 times)

FarmFam

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Get rid of Mortgage Escrow?
« on: April 23, 2015, 09:46:14 AM »
I am thinking of getting rid of the escrow in my mortgages and paying the insurance and taxes myself when it comes due.  I am always on time with my payments so have no problem paying these on my own.

I just feel that my money held in escrow and the extra they require is holding up my money from being in an interest savings account.

What do you think?  Is this a good or bad idea?

Mother Fussbudget

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Re: Get rid of Mortgage Escrow?
« Reply #1 on: April 23, 2015, 09:48:53 AM »
You can inquire about this, but the lending rules changed in the wake of the 2009 housing crisis.  Lenders formerly made escrow (for taxes, insurance, etc) an 'option'.  Today, it's a REQUIREMENT to get new financing / re-financing. 

So check with your lender to see if this is even possible before you spend a lot of time fretting about it.

bacchi

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Re: Get rid of Mortgage Escrow?
« Reply #2 on: April 23, 2015, 09:55:51 AM »
You can inquire about this, but the lending rules changed in the wake of the 2009 housing crisis.  Lenders formerly made escrow (for taxes, insurance, etc) an 'option'.  Today, it's a REQUIREMENT to get new financing / re-financing. 

So check with your lender to see if this is even possible before you spend a lot of time fretting about it.

Eh? I'm in the midst of a cash-out re-fi and there's no escrow.

ohana

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Re: Get rid of Mortgage Escrow?
« Reply #3 on: April 23, 2015, 09:59:16 AM »
I think he means after the financing of the mortgage.  Most banks collect your insurance and taxes, broken down into monthly payments, and then pay these fees for you.  It prevents them from losing their investment to fire or seizure for non-payment of taxes.

If you're disciplined and can invest it in very safe places, why not?

cynthia1848

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Re: Get rid of Mortgage Escrow?
« Reply #4 on: April 23, 2015, 10:21:11 AM »
It depends on the lender.  If you CAN do it, it makes sense, but some lenders require escrow as part of the mortgage payment.

wjquigs

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Re: Get rid of Mortgage Escrow?
« Reply #5 on: April 23, 2015, 10:35:27 AM »
I've done this in the past, and found it makes almost no difference financially. Unless your insurance and prop taxes are extremely high, you're not missing out on much. You would want to put the money in a safe investment so it would be available when due, which means 1% or so appreciation.
Where it may make a difference is in the competence of your mortgage lender. New regulations limit the amount of "overfunding" of escrow accounts, so banks adjust your payments up or down periodically (it seems once or twice a year). I once had a Chase mortgage. They decided my escrow account was underfunded, and raised my payment without notifying me, the month before I left for a 1-month trip. By the time I returned I had "underpaid" two mortgage payments, and had a ding on my credit report for a couple of years. Needless to say, I refinanced as soon as I could and would never consider banking with Chase.
Incidentally, the cost of a 1-month trip from Florida to the Bahamas on a home-built sailboat was around $1k. Kind of mustachian although I didn't know it then.
Bill

PathtoFIRE

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Re: Get rid of Mortgage Escrow?
« Reply #6 on: April 23, 2015, 11:23:21 AM »
I don't escrow, so I don't have direct experience here, but another limitation of escrow would be using property taxes to maximize federal tax deductions. With escrow, I assume you have no choice but to pay the property taxes on time at the end of the year. Without, and assuming you basically skirt the standard federal deduction threshold every year, you can come out ahead by paying 2 years worth of property taxes in one tax year, itemize deductions, and claim a deduction above the standard, and then in off years when you pay no taxes, you claim the standard deduction. Overall, you come out ahead. Some numbers as an example: $5k property tax, and your other deductions come out to $5k per year. So each year, you have $10k of deductions, below the standard deduction of 2015 for married filing jointly of $12,600, so each year you take the standard and don't itemize. If instead you pay 2 years worth of property taxes this year (prepay 2016 along with 2015's), you now have $15k worth of deductions for 2015, so you itemize and taken a higher deduction/pay lower taxes. Then in 2016, you only have $5k of deductions (since you aren't paying property tax that year, it was prepaid in 2015), and therefore you take the standard deduction of $12.6k. Assuming the numbers stayed the same (they won't), you would average $13.8k of deductions a year rather than the standard $12k.

It's not a lot of money, maybe around $100-300 a year tax savings depending on your actual numbers, but it's something to consider. This of course doesn't even get into the opportunity cost loss of prepaying taxes, but if you were cautious enough not to want to invest "next years" taxes, this is a way to get a small guaranteed return.

Davids

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Re: Get rid of Mortgage Escrow?
« Reply #7 on: April 23, 2015, 12:03:23 PM »
I do not have an escrow with my mortgage company. Be careful though as some will require escrow or will increase your rate if you choose not to escrow. Mine did not do either.

FarmFam

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Re: Get rid of Mortgage Escrow?
« Reply #8 on: April 23, 2015, 01:05:45 PM »
Thank you for all the advice.  I am going to call and ask them.  I guess no harm if they don't let me.  I won't stress about it.

Gr8ful

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Re: Get rid of Mortgage Escrow?
« Reply #9 on: April 23, 2015, 01:10:58 PM »
Escrow is not required on all loans.  Some lenders will require it at high LTV's.

If you currently have an escrow account you can always call the servicer and ask to have it removed.  I have done this a few times with my properties and only once was turned down.  They say it was because the loan was less than a year old.

Lenders look at having an escrow account as a plus (for them) and the majority seem to charge for an escrow waver.  I just checked one rate sheet and their hit is .25% of the loan amount on any loan, others that will not have a hit with low LTV's and my preferred lender does not charge at all.  So it makes sense to ask if escrows are required or if there would be a charge to have escrow's waived. 

Psychstache

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Re: Get rid of Mortgage Escrow?
« Reply #10 on: April 23, 2015, 03:39:31 PM »
You can inquire about this, but the lending rules changed in the wake of the 2009 housing crisis.  Lenders formerly made escrow (for taxes, insurance, etc) an 'option'.  Today, it's a REQUIREMENT to get new financing / re-financing. 

So check with your lender to see if this is even possible before you spend a lot of time fretting about it.

My mortgage was originated in 2013. One phone call to the bank and my escrow account was closed and I was sent the balance.