Author Topic: To escrow or not  (Read 2107 times)

boarder42

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To escrow or not
« on: July 20, 2016, 10:09:40 AM »
So i can choose not to escrow at an upfront cost of 445 dollars.  my total escrow annually is 7k give or take plus the buffer they keep in there.  but lets just assume 7k is all it is

7000 at .07% annually is 490 dollars.  over 30 years i'm likely to come out far and away ahead.

thoughts?

neo von retorch

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Re: To escrow or not
« Reply #1 on: July 20, 2016, 10:18:56 AM »
Do you mean 7%? 0.07% would be $4.90.

Why is there an upfront cost not to escrow? Did you borrow more than 80% LTV?

Mother Fussbudget

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Re: To escrow or not
« Reply #2 on: July 20, 2016, 10:21:30 AM »
Many loan companies REQUIRE you to use escrow to cover annual insurance and tax payments - the loan companies don't want to take on a property as collateral only to find the user stops payments, the house burns down, AND the owner has no insurance.

If I could go without paying escrow, and pay taxes and insurance directly, I would do that in a heartbeat.  Go for it!

dandarc

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Re: To escrow or not
« Reply #3 on: July 20, 2016, 10:27:34 AM »
makes sense to me, although I disagree with your figure of $490 / year.

Assuming you have 7% annual rate, compounded monthly, and that you have to have the 7K at the end of the year and not say half in month 6 then another half in month 12, I get annual savings of:

  MonthAmtInvestedMonthly Return
    0    0    0    0
    1    585    585    3.4125
    2    585    1170    6.825
    3    585    1755    10.2375
    4    585    2340    13.65
    5    585    2925    17.0625
    6    585    3510    20.475
    7    585    4095    23.8875
    8    585    4680    27.3
    9    585    5265    30.7125
    10    585    5850    34.125
    11    585    6435    37.5375
    12    585    7020    40.95
  Annual Savings266.175

So you still break even in year 2.  Need to be sure you've got plenty of investments to weather storms though - you have to pay your taxes whether the market is up or down, and where else can you reasonably expect a 7% annual return?

boarder42

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Re: To escrow or not
« Reply #4 on: July 20, 2016, 11:15:31 AM »
makes sense to me, although I disagree with your figure of $490 / year.

Assuming you have 7% annual rate, compounded monthly, and that you have to have the 7K at the end of the year and not say half in month 6 then another half in month 12, I get annual savings of:

  MonthAmtInvestedMonthly Return
    0    0    0    0
    1    585    585    3.4125
    2    585    1170    6.825
    3    585    1755    10.2375
    4    585    2340    13.65
    5    585    2925    17.0625
    6    585    3510    20.475
    7    585    4095    23.8875
    8    585    4680    27.3
    9    585    5265    30.7125
    10    585    5850    34.125
    11    585    6435    37.5375
    12    585    7020    40.95
  Annual Savings266.175

So you still break even in year 2.  Need to be sure you've got plenty of investments to weather storms though - you have to pay your taxes whether the market is up or down, and where else can you reasonably expect a 7% annual return?

yep thats the logic i needed. 

I also should note i get large bonuses at the end of every year that more than cover the taxes and insurance(which is due shortly after in Feb.  also thought about playing the deductions game to maximize those by taking the small hit and paying the taxes in jan for the previous year and the december for current year.  so i wont have to sell shares to pay these 2 bills.  basically this is just leveraging my bonus more than anything allowing me to invest part of it throughout the year rather than lump sum dump it in every dec/jan.

basically its win win over time though.  it should net an extra 266 bucks a year based on histoic 30 year averages.  plus the fact that its keeping up with inflation there vs in the escrow account where it isnt.


« Last Edit: July 20, 2016, 11:23:40 AM by boarder42 »

dandarc

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Re: To escrow or not
« Reply #5 on: July 20, 2016, 11:51:50 AM »
Just noticed I forgot to compound the interest in that table - shouldn't be a huge difference in the end value though.

boarder42

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Re: To escrow or not
« Reply #6 on: July 20, 2016, 12:00:03 PM »
Just noticed I forgot to compound the interest in that table - shouldn't be a huge difference in the end value though.

yep not worried and really should be doing it at 10% to include inflation b/c that money isnt inflating while its sitting in the account.

HipGnosis

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Re: To escrow or not
« Reply #7 on: July 20, 2016, 12:03:24 PM »
I don't know if there's a specific term for it., but I do 'half' escrow.
I pay escrow for my property tax and I pay my own homeowners insurance.
I do this so I can shop around for homeowners insurance every so often.

boarder42

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Re: To escrow or not
« Reply #8 on: July 20, 2016, 12:27:28 PM »
I don't know if there's a specific term for it., but I do 'half' escrow.
I pay escrow for my property tax and I pay my own homeowners insurance.
I do this so I can shop around for homeowners insurance every so often.

you can still shop for homeowners you just callup your mortgage and they will give you a refund if you find a cheaper rate.  i've done that many times.