Do you pay your taxes/insurance separate from your mortgage?

[Snow Boarder]

I normally pay my own taxes and insurance and it was a free option.

This refinancer wants to add .125 to the interest rate. Is it worth paying $10/month for a $120/month increase in cash flow.
Basically a $1,600 "personal escrow" account.

[Wizze]

I pay my own taxes/insurance. Had a new construction with this house and the original quotes from the escrow were significantly padded. Just made more sense to handle these items on my own. As an added bonus, I can bunch the taxes into alternating years for itemizing on my returns.

[sscritic]

Paid my own for almost forty years for a number of different homes. I would never take a mortgage that had pre-payment penalties or required an impound.

[Toons]

When I had a mortgage I always paid taxes ,insurance separate

[porcupine]

I normally pay my own taxes and insurance and it was a free option.

This refinancer wants to add .125 to the interest rate. Is it worth paying $10/month for a $120/month increase in cash flow.
Basically a $1,600 "personal escrow" account.

I would not worry about the cash flow. The only reason I would want to be free from escrow would be if I found it necessary to stagger (or combine every other year) my property tax payments to get over the standard deductions (to itemize).

- Porcupine

[Khanmots]

I normally pay my own taxes and insurance and it was a free option.

This refinancer wants to add .125 to the interest rate. Is it worth paying $10/month for a $120/month increase in cash flow.
Basically a $1,600 "personal escrow" account.

Figure out what rate of return you'd have to earn on the monies that are being used for taxes and insurance (with 1/12th deposited every month...) for it to equal 0.125% on the entire balance of your mortgage.

I'm pretty sure you'll find it'll be unobtainable.

[HueyLD]

Paid my own for almost forty years for a number of different homes. I would never take a mortgage that had pre-payment penalties or required an impound.

A while back, if a mortgage was sold to FNMA or FHLMC, the contract required banks to escrow T&I and the borrower had no choice if (s)he wanted to finance the purchase.

I am not sure about the current escrow requirements for loans that are to be sold to FNMA or FHLMC.

[Rainier]

Escrow accounts in my state pay a high interest rate, it's actually a good deal.

[Eldendor]

I'd like to, but unfortunately it looks as though I am not able to. I have a Fannie loan serviced by GMAC. I called yesterday to find out what the process was for waiving it, but the rep stated it was impossible due to it being a Fannie loan. I plan on doing a re-fi early next year to get rid of it (and drop my rate!).

By the time I get it done, it won't even benefit me on the tax side (bunching), but I still like having the control of it, to get rid of the buffer, and earn a little interest on the side.

[Snow Boarder]

By the time I get it done, it won't even benefit me on the tax side (bunching), but I still like having the control of it, to get rid of the buffer, and earn a little interest on the side.

I like the control too. It gives me a little extra cushion for unexpected spending hiccups. Stuff that needs needs to be purchased but don't justify tapping the emergency fund.

[Rodc]

I have done it both ways, frankly adding it into the mortgage is easier. But both are easy enough. I would not pay for the service.

[Nowizard]

Yes, I pay separately. That way, I keep the money in our account until payment rather than paying a portion monthly to accumulate sufficient escrow.

Tim

[Kosmo]

Just bought a new house...I pay insurance separately, but taxes are in escrow. They wouldn't let me pay those on my own.

[sscritic]

Paid my own for almost forty years for a number of different homes. I would never take a mortgage that had pre-payment penalties or required an impound.

A while back, if a mortgage was sold to FNMA or FHLMC, the contract required banks to escrow T&I and the borrower had no choice if (s)he wanted to finance the purchase.

My loan was sold to FannieMae on July 17, and no one said a word. Who would hold the impound account? FannieMae isn't my servicer. I guess FannieMae could force the servicer to try and force me, but I would refuse, so all that FannieMae could do is send it back to the holder that sold it to them. My contract is my contract; FannieMae could buy it, but they bought it "as is." At least that's what I know so far.

[tj]

My loan got sold to Fannie shortly after closing and i don't pay any escrows.

[bertilak]

I was required to have an escrow account or pay a "no-escrow" fee at closing. It was, I think, about $600. And I had 20% down. I let them hold the money for me.

The average float is about $2800 and at today's interest rates that doesn't cost much. Say $30 per year. The "service" they provide by managing that is almost worth that much.

[icefr]

I pay them myself. I don't plan on holding the mortgage for more than 5 years and I wanted to get in the habit of paying the property taxes myself. It also seems like much more of a pain when you're refinancing to adjust the escrow accounts to where they should be and then get refunds, etc. Thankfully my original mortgage and the refinanced one both didn't have fees for waiving escrow. Then again, neither mortgage was or will be sold to another lender.

[MoneyBagsRx]

I pay them myself, but here is the real reason why:


There is a chance that your mortgage lender may NOT pay your insurance - not at all, or not on time. They may make an oops, and you won't know unless you manually verify yourself, or you get that late notice with fees. I'm too OCD to rely on someone else to manage my money.


The idea that the lender also pads the balance keeps more than they need - which may lead to fluctuations in your monthly mortgage cost - is also something I'm not crazy about.

[lindisfarne]

I normally pay my own taxes and insurance and it was a free option.

This refinancer wants to add .125 to the interest rate. Is it worth paying $10/month for a $120/month increase in cash flow.
Basically a $1,600 "personal escrow" account.

Whether its worth it depends on whether you can get a better refinancing deal elsewhere. Do they have the option of allowing you to drop it down the road (e.g., after a year of making payments on time) without paying the fee?

I refinanced with AimLoan (very happy) & was told they wouldn't consider dropping the escrow until I'd paid at least a year; I haven't reached that point. Aim sends me monthly a statement showing next payment (broken down by interest, escrow, & principal) plus what I currently have in escrow. I'd like to drop the insurance escrow (mainly because this way I know insurance was paid on time); am debating about the taxes. At least in today's interest rate world, it doesn't seem to matter, at least not for me as my escrow never goes above $2000. I guess in part it would depend on how much you pay every 6 months in taxes (we can pay every 6 months here). I always check that taxes are paid & Aim doesn't wait until the last minute to pay them (at least, they haven't), so there's time to resolve any failure to pay.

For me, the difference in cash flow would not be worth the increased rate. If your escrow only builds to about $1600, I would think that it wouldn't be worth it to you; $120 is about 7-8%!

[pennstater2005]

Everything is escrowed. I'm lazy. That's why I have a Target date fund.

[Bacchus01]

If they make you escrow...negotiate.

During my last refi, they wanted me to escrow or pay .125 more. I walked away and told them they could keep it, I'll find someone else.

He called me the next day and said "how about escrow insurance for one year, then we'll take it off?" I said sure.

My taxes are $900/month. I'm not letting anyone hold that money but me.

I bought a second house just before Xmas and went through the same deal, but this time he knew what to do and just had it set up to escrow insurance.

[letsgobobby]

I escrow and at today's interest rates I don't resent it at all.

[sscritic]

Is investopedia wrong?

Definition of 'Impound'
An account maintained by mortgage companies to collect amounts such as hazard insurance, property taxes, private mortgage insurance and other required payments from the mortgage holders; these payments are necessary to keep the home but are not technically part of the mortgage. Impound accounts are often required of borrowers who put down less than 20%, but are usually optional in other cases.

Definition of 'Escrow'
A financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled. Securities, funds and other assets can be held in escrow.

Does your lender really use a third party escrow company to hold the tax and insurance payments separately? While I have never taken advantage of the offered impound account, I am pretty sure this question is about impound accounts, not escrows.

This site is supported by a 501(c)(3) to further financial education. Using the correct terms is one way to educate. Maybe Investopedia and I are wrong about the correct term to use in this case, so let's educate each other.

[sscritic]

Added thought:

The mortgage company is the third party. They are standing between you and your insurance company and taxing authority. In that sense, this is a generic escrow. The term impound account seems more accurate as it is specific to mortgages.

[Boglenaut]

i can't answer because your options don't cover me. I never took out a mortgage so pay taxes/insurance directly.

[G-Money]

I've done both.

My first mortgage required escrow/impound. With each refi since (there have been 4 of them), escrow/impound was not required, so I've been paying directly.

Being slightly OC and a bit of a control freak, I generally prefer paying taxes and insurance directly. That said, it's not a strong preference.

Since the poll uses the present tense, I voted "paying separately."

[porcupine]

Added thought:

The mortgage company is the third party. They are standing between you and your insurance company and taxing authority. In that sense, this is a generic escrow. The term impound account seems more accurate as it is specific to mortgages.

Property taxes are an exchange of funds between the property owner and the taxing authority (local county, in this case). So, the lender is the third party and the withholding of the money would be correctly termed an escrow.

On the other hand, if you were to be more technical, the bank is the owner of the property. In this case, maybe you would be right in referring to it an impound. Would you? Anyway, if you were to want to do so, you would be swimming against the tide as I am yet to meet anyone who refers to that money as an impound.

- Porcupine

[sscritic]

Anyway, if you were to want to do so, you would be swimming against the tide as I am yet to meet anyone who refers to that money as an impound.

I guess we have never met. See the second response in the thread.

I would never take a mortgage that had pre-payment penalties or required an impound.

[porcupine]

Anyway, if you were to want to do so, you would be swimming against the tide as I am yet to meet anyone who refers to that money as an impound.

I guess we have never met. See the second response in the thread.

I would never take a mortgage that had pre-payment penalties or required an impound.

I realized that after I typed my response (but did not edit it, as I was still correct! ).

- Porcupine

[NateW]

I don't like escrowing with my mortgage company. When I did escrow, several years ago I finally got tired of the mortgage company's required escrow balance falling too low (according to them) and them increasing my mortgage payments a little to increase the escrow account balance to catch up. Happened every year. That, coupled with the fact the mortgage company was getting free use of my money until they pay my taxes and insurance made me switch. I simply asked my mortgage company to stop escrowing. I was prepared for a big fat "NO", but they agreed to stop escrowing. I was shocked.

Later when I refinanced to a 15 year loan, in order to not escrow, I had to pay an up front fee equal to 1/4% of the loan amount (about $460), which I did. That's how much I don't like escrowing with a mortgage company.

Do others pay for the privilege to not escrow?

Edit: After reading other's replies, I feel paying the 1/4% fee was not the Bogleheads thing to do

--Nate

[Default User BR]

On the other hand, if you were to be more technical, the bank is the owner of the property.

The bank is NOT the owner of the property, technically or otherwise. The bank has a lien on property, which is a security interest.


Brian

[Default User BR]

I have not agree to escrow for quite some time. The first mortgage I had did have it. I'm perfectly capable of handling the two payments required each year, AND I know that they get paid and on time. Also, I am able to pay my insurance with a credit card, which is a benefit.


Brian

[Bungo]

I'm not a big fan of middlemen - one more party in the payment chain means a greater chance that something will go wrong. I nearly lost my health insurance during a time when I was consulting and using COBRA, all because the third party company that processed my payments screwed something up. So whenever there's a choice to do so, as with property tax and homeowner's insurance, I'll handle the payments on my own.

Interestingly, at no point during the mortgage process did anyone even ask me if I wanted them to pay the tax and insurance for me, let alone require such an arrangement. I used a credit union and am in California, not sure if that makes any difference.

[bertilak]

Many years ago, with my first mortgage, I had an escrow account. The mortgage was with a small, local, S&L.

The bank used my escrow to pay somebody else's taxes! The county would not refund the money. Once a tax is paid, that's it. I, personally, had to go to the other party and ask him to pay my taxes for me! I guess I was too young and inexperienced to get pushy with the bank. (He did. Luckily he hadn't yet paid the county anything.)

Despite that experience my mortgage with Wells Fargo does have an associated escrow account. I didn't want to pay the "no escrow" fee of about $600.

Over the years I have had mortgages with out an escrow -- with that S&L above for example. I told them I wanted out of the escrow arrangement and I think they were too embarrassed to deny me!

[sscritic]

On the other hand, if you were to be more technical, the bank is the owner of the property.

The bank is NOT the owner of the property, technically or otherwise. The bank has a lien on property, which is a security interest.


Brian

I believe that in my state my house is owned by a trustee because there is a deed of trust. Now there is an escrow. The trustee is the third party between me and my lender. Once I pay off the loan, the lender tells the trustee, and the trustee records a deed of reconveyance giving ownership of the house to me.

Definition of 'Deed Of Reconveyance'

A document issued by the holder of a mortgage indicating that the borrower is released from the mortgage debt. The deed of reconveyance transfers the title of the property back to the borrower. It is most commonly issued when a mortgage has been paid in full.

Note that before the deed of reconveyance is recorded, I don't hold title. It really is no different than a car loan where the lender's name is on your pink slip.

When a vehicle is financed, the certificate of title is normally held by the lender, who must release it to the purchaser once the balance is paid off. In some states, the transferred title is sent directly to that individual, but the name of the lender or lienholder appears on the title as well. In order to release the lien upon full payment, the lender sends a notarized release or other complementary document to the individual.

[jvclark02]

No lonnger have a mortagage, but when I did, there was an escrow account

[sjb19]

I escrow and make sure things get paid as expected, both out of the escrow account and in to insurance company or county. Internet makes this easy enough the few times a year it's necessary. As an added bonus I actually got interest on my escrow for the first time ever this year after a refi. I always thought that was state specific, but as I haven't changed states it must be how/where the bank is chartered or something. Not bad either, 4% I think.

[wander]

When I had a mortgage I always paid taxes ,insurance separate

+1.

[sesq]

I have always sought loans w/o escrow. If they are pricing in .0125 they aren't discussing it with me. I just don't trust the bank to do it properly especially if the loan servicing is transferred. No one has requested a fee out of me for the privilege, but my equity in most of my loans has usually been 25% and up which may calm their underwriting nerves.

[hansp]

Escrow accounts in my state pay a high interest rate, it's actually a good deal.

I didn't escrow until a couple of refi's ago when they were going to charge .125 point not to impound. Was pleasantly surprised at the end of the year to receive a 2% interest payment on my account. As long as rates are low, it's hard to beat that and I haven't had any issues w/ the payments going to the correct place.

[FinancialBalance]

Escrow accounts in my state pay a high interest rate, it's actually a good deal.

Really? What state, and what are they paying you?

That's foreign to what we have here... I do not escrow.

[GracieLou]

No, I pay through escrow because my credit union required it because of my VA loan. Fortunately for me, my lender has been very good about paying everything on time - so no complaints yet. I have, in the past, paid taxes and insurance separetely for two other homes.

[Alexandria]

We have always paid higher mortgage rate for "no escrow" - usually have to ask 10 times and cross out all the escrow stuff at closing. Something to fight for.

Have seen way too many forgotten tax and insurance payments, from escrow. Always a nightmare to fix.

On one hand, may be better if individual would forget too. But, we all don't keep mortgaged forever and have to take responsibility at some point. Worst story I have is relative who paid off mortgage. Insurance got dropped - they never received bill. (never moved or anything). Did not learn this until someone fell on their property and sued. A very expensive lesson in relying on the bank to handle for 30 years.