To escrow or not to escrow your taxes

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Topic Author
jimzerg
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To escrow or not to escrow your taxes

Post by jimzerg »

I recently purchased a $430k house and pay $724/month in property taxes which goes into escrow to the tune of almost $9000/year since Texas is a high property tax state. I did this because I was concerned about having too many credits at closing due to realtor rebates and loan credits even though I didn't actually need to do it (I put 20% down). This money gets taken out of my payment and put into an account and collects no interest and is usually paid in December at the end of the year that you lived there (2020 taxes are due in this coming January).

What are people's thoughts here on escrowing property taxes? I'm in sort of a no man's land outside city limits and the school district actually falls in a different county and a different tax authority. School district tax is about 60% of the tax. The rest goes to the county taxes and police, etc. That means if I get out of escrow I have to pay two different tax authorities at different periods of time. The school district makes you pay the entire tax owed at one time and gives you up to 3% discount if you pay in October as opposed to the January deadline. The county allows for a split payment tax payment where you can pay 1/2 in November and 1/2 in June for no penalty and this makes the most sense; no discount though. That means I would have to track three payments and make sure they get there on time.

Note that I did not escrow insurance and will pay that from my credit card.

I recently set up an Ally account, which I've heard can make this easier with buckets, so my questions are:

1) Do you recommend dropping escrow and paying your own property taxes?

2) What kind of accounts would you use to pay them to perhaps accululate a few bucks in interest?

3) How would you set up your accounts to pay these taxes and not forget to pay them? Late penalties are steep.

Thanks for any advice you can give!

Jim
Hyperchicken
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Re: To escrow or not to escrow your taxes

Post by Hyperchicken »

Hard "no" to escrow. There is not one single benefit to it, except of course that if the lender does not agree to lend you money without escrow, then the benefit of having escrow account is getting the loan.
I did this because I was concerned about having too many credits at closing due to realtor rebates and loan credits
I don't understand this part. You're basically saying that you were concerned about having too much money.
TropikThunder
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Re: To escrow or not to escrow your taxes

Post by TropikThunder »

jimzerg wrote: Wed Nov 11, 2020 11:57 pm What are people's thoughts here on escrowing property taxes?
If you invest the $724/mo for one year at Ally's current APY of 0.60%, you'll earn about $26 [average balance $724 x 6 = $4,344 @0.60% = $26]. Is $2/month worth not having to worry about missing a payment?
Late penalties are steep.
If you're one month late, the initial penalty and interest is 7% of the unpaid balance. 7% of $8,688 is $608.
https://comptroller.texas.gov/taxes/pro ... 019-20.php
Topic Author
jimzerg
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Re: To escrow or not to escrow your taxes

Post by jimzerg »

Hyperchicken wrote: Thu Nov 12, 2020 12:01 am Hard "no" to escrow. There is not one single benefit to it, except of course that if the lender does not agree to lend you money without escrow, then the benefit of having escrow account is getting the loan.
I did this because I was concerned about having too many credits at closing due to realtor rebates and loan credits
I don't understand this part. You're basically saying that you were concerned about having too much money.
Right, my understanding was that if you have too many credits from "interested parties" the lender has issues with using it as cash towards down payment and want you to use it for closing costs only. I had a realtor and lender rebates which took care of most of my closing costs. It's something that came about during Fannie Mae/Freddie Mac reforms following the crash. If you have too many credits that go beyond closing costs, you may have to give them back or you have to do silly things like buy points you may not want. I couldn't get a straight answer from the lender or title company as to whether property tax credits from the seller (since he owed over half the year) would be treated as a credit from an interested party, or if I could just pocket it, so I decided to escrow his taxes and my own at closing to resolve this situation. And now I'm paying into that.
Topic Author
jimzerg
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Re: To escrow or not to escrow your taxes

Post by jimzerg »

TropikThunder wrote: Thu Nov 12, 2020 12:30 am
jimzerg wrote: Wed Nov 11, 2020 11:57 pm What are people's thoughts here on escrowing property taxes?
If you invest the $724/mo for one year at Ally's current APY of 0.60%, you'll earn about $26 [average balance $724 x 6 = $4,344 @0.60% = $26]. Is $2/month worth not having to worry about missing a payment?
Late penalties are steep.
If you're one month late, the initial penalty and interest is 7% of the unpaid balance. 7% of $8,688 is $608.
https://comptroller.texas.gov/taxes/pro ... 019-20.php
The interest is paltry. So you would choose to escrow rather than worry about it?
TropikThunder
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Re: To escrow or not to escrow your taxes

Post by TropikThunder »

jimzerg wrote: Thu Nov 12, 2020 1:20 am
TropikThunder wrote: Thu Nov 12, 2020 12:30 am
jimzerg wrote: Wed Nov 11, 2020 11:57 pm What are people's thoughts here on escrowing property taxes?
If you invest the $724/mo for one year at Ally's current APY of 0.60%, you'll earn about $26 [average balance $724 x 6 = $4,344 @0.60% = $26]. Is $2/month worth not having to worry about missing a payment?
Late penalties are steep.
If you're one month late, the initial penalty and interest is 7% of the unpaid balance. 7% of $8,688 is $608.
https://comptroller.texas.gov/taxes/pro ... 019-20.php
The interest is paltry. So you would choose to escrow rather than worry about it?
I would escrow it IMO, but I know it's a hot-button issue for a lot of people here. One less thing for me to worry about (budgeting, making the payment, etc). I escrow the insurance too, but mine is nowhere near as high as it is in Texas so I almost don't even feel it (~$34/month).
Topic Author
jimzerg
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Re: To escrow or not to escrow your taxes

Post by jimzerg »

TropikThunder wrote: Thu Nov 12, 2020 1:23 am
jimzerg wrote: Thu Nov 12, 2020 1:20 am
TropikThunder wrote: Thu Nov 12, 2020 12:30 am
jimzerg wrote: Wed Nov 11, 2020 11:57 pm What are people's thoughts here on escrowing property taxes?
If you invest the $724/mo for one year at Ally's current APY of 0.60%, you'll earn about $26 [average balance $724 x 6 = $4,344 @0.60% = $26]. Is $2/month worth not having to worry about missing a payment?
Late penalties are steep.
If you're one month late, the initial penalty and interest is 7% of the unpaid balance. 7% of $8,688 is $608.
https://comptroller.texas.gov/taxes/pro ... 019-20.php
The interest is paltry. So you would choose to escrow rather than worry about it?
I would escrow it IMO, but I know it's a hot-button issue for a lot of people here. One less thing for me to worry about (budgeting, making the payment, etc). I escrow the insurance too, but mine is nowhere near as high as it is in Texas so I almost don't even feel it (~$34/month).
That makes sense. It's my first time doing escrow. The last house, which I sold, I did he split payment to one tax authority. I was late one time by a day and that cost me about $150 at the time.

Do you have any issues with your escrow service co. paying the taxes on time or readjusting based on new property tax rates (i.e. - charging too much). These are the kinds of things I haven't dealt with before but I read about some nightmare stories.

The interest is definitely not an advantage but the 3% discount on school taxes, for early payment in October, was also appealing which could save around $162 a year in return for me remembering to manage the money and send the checks on time.
pasadena
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Re: To escrow or not to escrow your taxes

Post by pasadena »

I do not own my home, but I researched this a lot in prevision, and as a foreigner, I find the fact that escrow is even a thing mind blowing.

So it would be a hard NO for me too. I don't let anyone manage my money for me, and I certainly wouldn't trust someone else to pay debts I'm responsible for in my place, while keeping my money for a year. I see zero advantage, and plenty of disadvantages and potential problems down the road.
muddgirl
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Re: To escrow or not to escrow your taxes

Post by muddgirl »

We decided not to escrow when we had the option.

Not for the interest, but because we had heard too many escrow horror stories. Why would I trust Faceless Loan Servicer to pay my bills on time and to the correct authority after my loan has been sold 3 or 4 times? Saving the money myself is pretty trivial - just a line item in my budget and a reminder on my calendar.
123
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Re: To escrow or not to escrow your taxes

Post by 123 »

Most of us who are wearing our "Big boy pants" do not use escrow for our taxes.
The closest helping hand is at the end of your own arm.
Ron Ronnerson
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Re: To escrow or not to escrow your taxes

Post by Ron Ronnerson »

I don’t have an escrow account and just made a property tax payment a few days ago. My wife applied for a Chase Sapphire Preferred credit card offering a bonus of 80k points for spending $4k within 3 months. We met the requirement with one charge for $5k, the amount of the first installment for our property taxes. We earned 80k points as a bonus and another 5k was earned for spending $5k on the card for a total of 85k points. That is worth $850 in cash back. However, instead, we will transfer the points to a Chase Sapphire Reserve account in my name so I can redeem the points for 1.5 times the value on travel and/or grocery store purchases. That makes the points worth $1275. The fee to pay the property taxes by credit card was 2.5%, which comes to $125 on a $5k charge. So we will net $1150, effectively reducing the property tax bill by 23%.

I will open a credit card in my name once it is time to pay the second installment of property taxes to earn another bonus. We have done this for the past 4 or 5 years and saved thousands of dollars. We don’t open a lot of credit cards but meeting the minimum spending requirement by making just one transaction is pretty great. This opportunity would not exist if we had an escrow account. We do have to be vigilant about making the payments on time but I like being in control of things and making sure the payments post when I want them to. In the past, it’s been advantageous to us from a tax standpoint as well to have payments post at a certain time (such as December instead of January or vice versa).
stungerz
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Re: To escrow or not to escrow your taxes

Post by stungerz »

Not worth the hassle. I own a place where I don’t escrow and my taxes are due in March and October for the year. I pay everything off in March.

If you don’t escrow, I would just pay everything off in October
hbdad
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Re: To escrow or not to escrow your taxes

Post by hbdad »

Benefit of escrow is should something happen to you, the taxes will be paid automatically. Your wife and kids won’t find themselves facing a large tax penalty because taxes haven’t been paid for a year. With that said, I do not escrow because of bad experiences with mortgage services charging me way too much and not being responsive. Your situation sounds easy. You make it sound like you can just call up your servicer and request they no longer collect your taxes. If that is the case, I suggest you continue to escrow and if it comes to a point where you experience a problem, then call them and cancel the escrow. Otherwise if they are doing just fine, don’t cancel. Easy way to make sure your taxes are paid is to check a few days before they are due. If loan servicer has paid them, great. If not, pay them, wait for a refund, cancel your escrow and going forward pay your own taxes.
hbdad
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Re: To escrow or not to escrow your taxes

Post by hbdad »

Ron Ronnerson wrote: Thu Nov 12, 2020 2:00 am I will open a credit card in my name once it is time to pay the second installment of property taxes to earn another bonus. We have done this for the past 4 or 5 years and saved thousands of dollars. We don’t open a lot of credit cards...”
Great way to get some points. Only thing is, based on what you said, between you and your wife, you’ve opened up approximately 10 credit cards in the last 5 years. I don’t know what your definition of “not a lot” is but that sounds like a lot.
muddgirl
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Re: To escrow or not to escrow your taxes

Post by muddgirl »

stungerz wrote: Thu Nov 12, 2020 2:09 amIf you don’t escrow, I would just pay everything off in October
Agreed, I also lived in Texas and just paid the full year at once, especially if you are worried about complexity leading to missed deadlines.
Topic Author
jimzerg
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Re: To escrow or not to escrow your taxes

Post by jimzerg »

Ron Ronnerson wrote: Thu Nov 12, 2020 2:00 am I don’t have an escrow account and just made a property tax payment a few days ago. My wife applied for a Chase Sapphire Preferred credit card offering a bonus of 80k points for spending $4k within 3 months. We met the requirement with one charge for $5k, the amount of the first installment for our property taxes. We earned 80k points as a bonus and another 5k was earned for spending $5k on the card for a total of 85k points. That is worth $850 in cash back. However, instead, we will transfer the points to a Chase Sapphire Reserve account in my name so I can redeem the points for 1.5 times the value on travel and/or grocery store purchases. That makes the points worth $1275. The fee to pay the property taxes by credit card was 2.5%, which comes to $125 on a $5k charge. So we will net $1150, effectively reducing the property tax bill by 23%.

I will open a credit card in my name once it is time to pay the second installment of property taxes to earn another bonus. We have done this for the past 4 or 5 years and saved thousands of dollars. We don’t open a lot of credit cards but meeting the minimum spending requirement by making just one transaction is pretty great. This opportunity would not exist if we had an escrow account. We do have to be vigilant about making the payments on time but I like being in control of things and making sure the payments post when I want them to. In the past, it’s been advantageous to us from a tax standpoint as well to have payments post at a certain time (such as December instead of January or vice versa).
That's great advice for gaining points. I have been playing the credit card points game for years to help with travel costs, but both my wife and i have had Sapphire cards in the last 4 years and you cannot get a bonus if you signed up for a Sapphire product and received a bonus within that time frame (we have Preferred and Reserve cards). Furthermore, with the lock down, our traveling has been nil lately and we are confined to this new house. I did not consider paying taxes with a card due to the credit card surcharge and always used cards on "free" CC transactions. A signup bonus would offset this to some degree and knock out several bonuses.

It's a side topic but I need to shop for a different card and grab another bonus since I've done Sapphire and Ink Preferred bonuses and have plenty of Christmas shopping coming up. If you have any recommendations on a credit card bonus, please PM me. I was considering an AMEX Gold but I need to learn more about their program.
Last edited by jimzerg on Thu Nov 12, 2020 2:23 am, edited 1 time in total.
Topic Author
jimzerg
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Re: To escrow or not to escrow your taxes

Post by jimzerg »

123 wrote: Thu Nov 12, 2020 1:45 am Most of us who are wearing our "Big boy pants" do not use escrow for our taxes.
Do you use something like Bill Pay or just write checks when the time comes based on a calendar reminder?
mortfree
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Re: To escrow or not to escrow your taxes

Post by mortfree »

No escrow here.

March, July and November are the dates I have to remember.

I get a bill in the mail so that makes it easier.

Imagine not being forced to hand over $700 per month. You can save however you want.

My escrow would be close to 1k per month.

No thanks
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dodecahedron
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Re: To escrow or not to escrow your taxes

Post by dodecahedron »

jimzerg wrote: Thu Nov 12, 2020 2:23 am
123 wrote: Thu Nov 12, 2020 1:45 am Most of us who are wearing our "Big boy pants" do not use escrow for our taxes.
Do you use something like Bill Pay or just write checks when the time comes based on a calendar reminder?
I use bill pay for just about everything else other than property taxes, so I write very few physical checks these days. Property taxes are special, due to large penalties for late arrival in case of bank screwup so I do write checks for that.

Until the Pandemic, I would go in person to Town Hall and hand over a check and get a date stamped PAID on my bill as a receipt showing date of payment. Bills for county/town real estate taxes are traditionally issued in late December and due by end of January and I frequently care *which* tax year the deduction fell in so that date-stamp is potentially important. Besides I kind of like the friendly small town citizenship glow from paying taxes in person and town hall is very convenient. (Nice walk if weather is nice and on my way to other errands if driving.)

This year I will still go to Town Hall in person in early January (since mail is not as reliable as it used to be) but will not physically hand it over and wait to get it stamped. I will just drop the envelope containing my payment in the designated drop box just outside the door with a request that they mail me the date stamped receipt.
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jimzerg
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Re: To escrow or not to escrow your taxes

Post by jimzerg »

dodecahedron wrote: Thu Nov 12, 2020 2:58 am
jimzerg wrote: Thu Nov 12, 2020 2:23 am
123 wrote: Thu Nov 12, 2020 1:45 am Most of us who are wearing our "Big boy pants" do not use escrow for our taxes.
Do you use something like Bill Pay or just write checks when the time comes based on a calendar reminder?
I use bill pay for just about everything else other than property taxes, so I write very few physical checks these days. Property taxes are special, due to large penalties for late arrival in case of bank screwup so I do write checks for that.

Until the Pandemic, I would go in person to Town Hall and hand over a check and get a date stamped PAID on my bill as a receipt showing date of payment. Bills for county/town real estate taxes are traditionally issued in late December and due by end of January and I frequently care *which* tax year the deduction fell in so that date-stamp is potentially important. Besides I kind of like the friendly small town citizenship glow from paying taxes in person and town hall is very convenient. (Nice walk if weather is nice and on my way to other errands if driving.)

This year I will still go to Town Hall in person in early January (since mail is not as reliable as it used to be) but will not physically hand it over and wait to get it stamped. I will just drop the envelope containing my payment in the designated drop box just outside the door with a request that they mail me the date stamped receipt.
I just checked my escrow details and noticed they already paid the school tax last month and saved me $165 in taxes from the early payment. So they do seem to be on the ball at least.
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dodecahedron
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Re: To escrow or not to escrow your taxes

Post by dodecahedron »

jimzerg wrote: Thu Nov 12, 2020 3:33 am I just checked my escrow details and noticed they already paid the school tax last month and saved me $165 in taxes from the early payment. So they do seem to be on the ball at least.
That is a good sign, but keep in mind that banks are constantly selling the servicing rights for their mortgages, so the institution servicing your mortgage this year could change in years ahead without your having any say in the matter.
Silverado
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Re: To escrow or not to escrow your taxes

Post by Silverado »

jimzerg wrote: Thu Nov 12, 2020 2:23 am
123 wrote: Thu Nov 12, 2020 1:45 am Most of us who are wearing our "Big boy pants" do not use escrow for our taxes.
Do you use something like Bill Pay or just write checks when the time comes based on a calendar reminder?
When we get the tax bill, I write two bill pay payments, one for each due date. So no danger of missing the second payment (ish since the trust is in the bank...) We keep enough cash buffer that no danger of overdraw for the second one.
Allan12
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Re: To escrow or not to escrow your taxes

Post by Allan12 »

I recently removed Escrow from my mortgage.

My city came out with an autopay program. Every month they automatically take from my bank account the property taxes due. I pay the insurance annually.

Now I’m not estimating my property taxes to an escrow account, I’m paying the exact amount.
Spedward
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Re: To escrow or not to escrow your taxes

Post by Spedward »

muddgirl wrote: Thu Nov 12, 2020 1:43 am We decided not to escrow when we had the option.

Not for the interest, but because we had heard too many escrow horror stories. Why would I trust Faceless Loan Servicer to pay my bills on time and to the correct authority after my loan has been sold 3 or 4 times? Saving the money myself is pretty trivial - just a line item in my budget and a reminder on my calendar.
Although your loan gets sold over and over, the servicer (the party that applies payments, issues bills, etc.) generally stays the same. Most mortgage companies are in the underwriting and servicing business. They underwrite the loan, season it (i.e. perhaps hold for a certain period of time depending on the market, business objections, and alike), then sell it. The sale typically takes the form of an outright sale of the loan or its packaged with a bunch of other loans and the loan portfolio is securitized and sold as MBS. The party that owns the loan then pays a servicing fee given it is just typically held for investment and they are not in the business of servicing loans.

That being said, we do not escrow. We did on on our first house because we did not give it much thought but it annoyed me that the loan servicer could never get the escrow amount right. There would ALWAYS be a shortfall or over estimate year after year. We live in a high RE tax state (and likely the highest RE tax county in the state), so a couple of thousand swing in RE taxes in a given year is the norm.
gonefishing01
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Re: To escrow or not to escrow your taxes

Post by gonefishing01 »

No escrow here. Pay the bill in full every year when it arrives. To me escrow is the same as pre-paying too much income taxes and getting a refund a year later. I’d like to control as much of my capital as possible and pay my bills when due instead of lending to somebody else interest free.
Jack FFR1846
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Re: To escrow or not to escrow your taxes

Post by Jack FFR1846 »

TropikThunder wrote: Thu Nov 12, 2020 12:30 am If you invest the $724/mo for one year at Ally's current APY of 0.60%, you'll earn about $26 [average balance $724 x 6 = $4,344 @0.60% = $26]. Is $2/month worth not having to worry about missing a payment?
The only time I have ever missed a property tax payment was because it was in an escrow account and the bank didn't pay it. A big NOPE from me. I no longer have a mortgage and will be quite happy getting an extra $26 a year for doing nothing. True passive income.
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sschoe2
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Re: To escrow or not to escrow your taxes

Post by sschoe2 »

I like to escrow the taxes but not the insurance. It makes switching insurance easier. The taxes it is like a budget plan like I have for gas and electric.
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midareff
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Re: To escrow or not to escrow your taxes

Post by midareff »

I self escrow for property tax, insurance for home and car and IRS Estimated Tax. I do it in an Ally Bank Savings account @ .6% current interest rate. All contributions to the account are automatic and I prefer to handle everything myself.
armeliusc
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Re: To escrow or not to escrow your taxes

Post by armeliusc »

No escrow for me either. Just pay the tax once a year.
jimzerg wrote: Thu Nov 12, 2020 2:23 am
123 wrote: Thu Nov 12, 2020 1:45 am Most of us who are wearing our "Big boy pants" do not use escrow for our taxes.
Do you use something like Bill Pay or just write checks when the time comes based on a calendar reminder?
I can do it with electronic check (ACH) from the county website.
Katietsu
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Re: To escrow or not to escrow your taxes

Post by Katietsu »

This is personal. I would not escrow. I trust myself to do it right more than a mortgage lender. But, then, I would not be wondering if I should create buckets or how do I remember the dates. I keep more cash in my account than many here, so I would just write a check when I got the bill. On the other hand, there a millions of mortgages out there with escrowed tax payments. So it works as intended most of the time. It is a set it and forget process for most people. So, it sounds like the current set up is good for the OP. Personal finance is personal.
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8foot7
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Re: To escrow or not to escrow your taxes

Post by 8foot7 »

We just wrote to get our escrow cancelled. The servicer was demanding an over $1,000 "cushion" to protect against future bill increases (two months' worth of projected escrow payments over and above what was necessary to pay this year's bills). I understand this is standard procedure but I am not interested in using $1,000 of my own money at no return to make another entity feel better. Instead, we will transfer 1/12th of this year's combined tax and HO insurance amounts to an Amex hi-yield savings account monthly.
Mike Scott
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Re: To escrow or not to escrow your taxes

Post by Mike Scott »

It is easier to self escrow and pay than it is to check up on what happened when the bank did not pay (happened 3 years in a row to us before closing the escrow account). Also mentioned previously, it allows for self money management, collecting a bit of interest and more importantly big discounts using credit card bonuses.
PaunchyPirate
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Re: To escrow or not to escrow your taxes

Post by PaunchyPirate »

I moved to not escrowing a couple mortgages ago and found I liked it better. In my case, the tax bill was mailed directly to me when it was due and I paid it (2x a year). One year, on a mortgage that was escrowed, there was a mix up and the bank did not make the tax payment. I was not aware of it until the county sent me a second notice. Upon calling the bank, they indicated they never got the bill to pay. I have no idea if that was true or not, but it made me leery of using the bank to escrow. So I went with no escrow from then on. Now, with my mortgage paid off (yay!), I just pay the taxes directly, of course.
humblecoder
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Re: To escrow or not to escrow your taxes

Post by humblecoder »

Many states require lenders to pay interest on money held in escrow. Where I live (Maryland) the government sets a minimum interest rate for escrow accounts, based upon the 1 year US Treasury Rate at the start of the year. For 2020, the minimum rate is 1.56% which turned out to be a pretty darn good deal.

I've never NOT escrowed my taxes/insurance and I have never had any issues. Honestly, until recently, I didn't realize that there was an option not to escrow.
Lalamimi
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Re: To escrow or not to escrow your taxes

Post by Lalamimi »

Fellow Texan here. We always had to escrow, but paid off house w same value as yours 2 yrs ago after sale of other home, so we are at about $10K for taxes as well. I have earmarked money in Credit Union account and write the check as soon as tax bill comes. 2018 was a challenge as they were still determining the taxes due to increases, etc., and I needed to pay in 2018 for income tax purposes. Just set alarms late December to make the payment, have the monthly amount auto sent into an interest bearing account that is easily accessed.
katrid11
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Re: To escrow or not to escrow your taxes

Post by katrid11 »

Hard NO to escrow. We pay 4 times a year for taxes and 1x a year for insurance. Much easier to save it monthly and transfer than to have the bank do it.

My last house it was escrowed. in year 1 I had them send me back money 2x and ask for more 1x b/c the taxes are July 1 - June 30th and don't always get approved until Sept 1. Bank estimates wrong and recalculated several times. It was annoying b/c my bill kept changing. Same issue with insurance - they sent a payment before receiving the bill (didnt want to be late) then it turned out my ins had gone down and my insurer sent them the refund check but by then they had too much in escrow and had to refund it AGAIN.

I see literally no benefit to escrowing. It's easy enough to set a bill pay reminder just like I would with my Amex bill or a quarterly sewer bill.
260chrisb
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Re: To escrow or not to escrow your taxes

Post by 260chrisb »

123 wrote: Thu Nov 12, 2020 1:45 am Most of us who are wearing our "Big boy pants" do not use escrow for our taxes.
Well, I'll go change pants :D ; my taxes are less than half of the OPs and I did it simply to have one less thing to worry about when I bought my house five years ago. Have I lost a little money having it in escrow? Perhaps, but not enough to lose sleep over.
stan1
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Re: To escrow or not to escrow your taxes

Post by stan1 »

We pay by ACH on our county's website. Insurance is auto debited from our checking accounts. Because of how the payment due dates in our county are split (October and January) we sometimes play the game of grouping payments for tax deductibility (e.g. 150% one year, $50% next year) which in our specific situation sometimes means we itemize or take standard deduction.

We did have a problem years ago with the lender not paying the property tax in a timely manner from the impound account. Just seems simpler thus better to take personal accountability for one's bills instead of using an intermediary.

We have no way to charge property tax or insurance to a credit card (neither accepts credit cards).
BogleFan510
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Re: To escrow or not to escrow your taxes

Post by BogleFan510 »

jimzerg wrote: Wed Nov 11, 2020 11:57 pm I recently purchased a $430k house and pay $724/month in property taxes which goes into escrow to the tune of almost $9000/year since Texas is a high property tax state. I did this because I was concerned about having too many credits at closing due to realtor rebates and loan credits even though I didn't actually need to do it (I put 20% down). This money gets taken out of my payment and put into an account and collects no interest and is usually paid in December at the end of the year that you lived there (2020 taxes are due in this coming January).

What are people's thoughts here on escrowing property taxes? I'm in sort of a no man's land outside city limits and the school district actually falls in a different county and a different tax authority. School district tax is about 60% of the tax. The rest goes to the county taxes and police, etc. That means if I get out of escrow I have to pay two different tax authorities at different periods of time. The school district makes you pay the entire tax owed at one time and gives you up to 3% discount if you pay in October as opposed to the January deadline. The county allows for a split payment tax payment where you can pay 1/2 in November and 1/2 in June for no penalty and this makes the most sense; no discount though. That means I would have to track three payments and make sure they get there on time.

Note that I did not escrow insurance and will pay that from my credit card.

I recently set up an Ally account, which I've heard can make this easier with buckets, so my questions are:

1) Do you recommend dropping escrow and paying your own property taxes?

2) What kind of accounts would you use to pay them to perhaps accululate a few bucks in interest?

3) How would you set up your accounts to pay these taxes and not forget to pay them? Late penalties are steep.

Thanks for any advice you can give!

Jim
My advice is to not sweat the small stuff. Let them escrow and pay your taxes, if that is offered for no additional fees. Sounds like you live in the area where we once did. We paid school district taxes to county our schools were in, and property taxes to another county, and were formally part of the 'big city.'
Ron Ronnerson
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Re: To escrow or not to escrow your taxes

Post by Ron Ronnerson »

hbdad wrote: Thu Nov 12, 2020 2:16 am
Ron Ronnerson wrote: Thu Nov 12, 2020 2:00 am I will open a credit card in my name once it is time to pay the second installment of property taxes to earn another bonus. We have done this for the past 4 or 5 years and saved thousands of dollars. We don’t open a lot of credit cards...”
Great way to get some points. Only thing is, based on what you said, between you and your wife, you’ve opened up approximately 10 credit cards in the last 5 years. I don’t know what your definition of “not a lot” is but that sounds like a lot.
I suppose definitions do vary. We each open 2-3 cards per year. Most of the cards are closed within a year, before the annual fee posts. Our credit scores are in the 800 range. Some people open many more cards than we do. It's not for everyone, though.
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SmileyFace
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Re: To escrow or not to escrow your taxes

Post by SmileyFace »

Absolutely NO from my perspective. If your mortgage company pays late they may pay that "stiff penalty" on your behalf with your money without you even knowing if you aren't reviewing all the transactions in your escrow account. Handle it yourself.
Property taxes (and Home Owner's Insurance) are simply another bill for me. I am notified when they are due just like my utilities, Life-Insurance, etc. and pay them before they are due. Not sure why you need a new account and strategy for this.
I live in MA - I wish my property taxes were as low as yours (although I could get them down a bit if I moved towns) :)
feehater
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Re: To escrow or not to escrow your taxes

Post by feehater »

I have done it both ways, and found downsides to both systems. In the case where I was not escrowing, my servicing was transferred in the month my insurance was renewing, and the new servicer got all tangled up in knots trying to get proof of my insurance renewal, lienholder changed over, etc. It ended up being just as much a pain as dealing with escrow statements had previously been.

Not mentioned by anyone yet, but at least in the case of online refis that a lot of us are doing these days, you almost always get a lower interest rate if you escrow. So, definitely not worth paying 1/8 of a percent to avoid it. Doesn't sound like you're in that situation right now though.
Independent George
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Re: To escrow or not to escrow your taxes

Post by Independent George »

I think it's a wash given current interest rates. It mattered to me in 2007, when I was getting a 5% APY on my online savings account, but that was gone within a year.

If we get back above 3%, I'll consider contacting my bank about stopping escrow; in the meantime, it's all a big 'meh' to me.
surfstar
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Re: To escrow or not to escrow your taxes

Post by surfstar »

Hyperchicken wrote: Thu Nov 12, 2020 12:01 am Hard "no" to escrow. There is not one single benefit to it, except of course that if the lender does not agree to lend you money without escrow, then the benefit of having escrow account is getting the loan.
Here's a benefit for California residents:

2954.8.
(a) Every financial institution that makes loans upon the security of real property containing only a one- to four-family residence and located in this state or purchases obligations secured by such property and that receives money in advance for payment of taxes and assessments on the property, for insurance, or for other purposes relating to the property, shall pay interest on the amount so held to the borrower. The interest on such amounts shall be at the rate of at least 2 percent simple interest per annum. Such interest shall be credited to the borrower’s account annually or upon termination of such account, whichever is earlier.

2% interest on escrow accounts, by law. I rarely [never?] see this mentioned.
https://leginfo.legislature.ca.gov/face ... Num=2954.8.
Onlineid3089
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Re: To escrow or not to escrow your taxes

Post by Onlineid3089 »

We escrow and I've never had a problem in the eight years I've owned this house. Being in a modest house in small town Iowa my taxes and insurance are so small that any interest gained from not escrowing probably wouldn't get me a value meal at McDonald's. Of course, that also means the expense if I chose to not escrow and pay out of pocket when due would also be negligible. With our property tax and insurance costs it isn't worth any time considering it. If we were talking tens of thousands of dollars per year maybe it would be different.
Ron Ronnerson
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Re: To escrow or not to escrow your taxes

Post by Ron Ronnerson »

jimzerg wrote: Thu Nov 12, 2020 2:20 am
Ron Ronnerson wrote: Thu Nov 12, 2020 2:00 am I don’t have an escrow account and just made a property tax payment a few days ago. My wife applied for a Chase Sapphire Preferred credit card offering a bonus of 80k points for spending $4k within 3 months. We met the requirement with one charge for $5k, the amount of the first installment for our property taxes. We earned 80k points as a bonus and another 5k was earned for spending $5k on the card for a total of 85k points. That is worth $850 in cash back. However, instead, we will transfer the points to a Chase Sapphire Reserve account in my name so I can redeem the points for 1.5 times the value on travel and/or grocery store purchases. That makes the points worth $1275. The fee to pay the property taxes by credit card was 2.5%, which comes to $125 on a $5k charge. So we will net $1150, effectively reducing the property tax bill by 23%.

I will open a credit card in my name once it is time to pay the second installment of property taxes to earn another bonus. We have done this for the past 4 or 5 years and saved thousands of dollars. We don’t open a lot of credit cards but meeting the minimum spending requirement by making just one transaction is pretty great. This opportunity would not exist if we had an escrow account. We do have to be vigilant about making the payments on time but I like being in control of things and making sure the payments post when I want them to. In the past, it’s been advantageous to us from a tax standpoint as well to have payments post at a certain time (such as December instead of January or vice versa).
That's great advice for gaining points. I have been playing the credit card points game for years to help with travel costs, but both my wife and i have had Sapphire cards in the last 4 years and you cannot get a bonus if you signed up for a Sapphire product and received a bonus within that time frame (we have Preferred and Reserve cards). Furthermore, with the lock down, our traveling has been nil lately and we are confined to this new house. I did not consider paying taxes with a card due to the credit card surcharge and always used cards on "free" CC transactions. A signup bonus would offset this to some degree and knock out several bonuses.

It's a side topic but I need to shop for a different card and grab another bonus since I've done Sapphire and Ink Preferred bonuses and have plenty of Christmas shopping coming up. If you have any recommendations on a credit card bonus, please PM me. I was considering an AMEX Gold but I need to learn more about their program.
I would check out this site: https://www.doctorofcredit.com/best-cur ... n-bonuses/

A few months ago, my wife opened up a card with BBVA and earned a $600 bonus (in cash) even though they advertise a bonus of $500. I am not sure why they gave us an additional $100. The minimum spending requirement is $4k and the card is only available in a few states, including Texas. You also earn an additional 1% on all transactions so the bonus plus the 1% back should more than offset a small fee for paying property taxes by credit card. I plan to open this card to pay the second installment of my property taxes in a couple of months.

You are right that the Chase Sapphire bonuses require a 4 year waiting period since the last time a person earned a bonus on one of their credit cards. It had been 4 years and 3 days since my wife last earned a bonus and 80k points was a particularly good deal. I am not a serious credit card churner but a couple of new credits cards to pay property taxes each year is low-hanging fruit and effectively lowers one's property taxes.
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SmileyFace
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Re: To escrow or not to escrow your taxes

Post by SmileyFace »

Onlineid3089 wrote: Thu Nov 12, 2020 12:42 pm We escrow and I've never had a problem in the eight years I've owned this house. Being in a modest house in small town Iowa my taxes and insurance are so small that any interest gained from not escrowing probably wouldn't get me a value meal at McDonald's. Of course, that also means the expense if I chose to not escrow and pay out of pocket when due would also be negligible. With our property tax and insurance costs it isn't worth any time considering it. If we were talking tens of thousands of dollars per year maybe it would be different.
With me the decision had nothing to do with finances (whether the escrow account could get better rates than myself). Everything went well for over a decade and then one year my mortgage company somehow missed both my Home Owner's insurance payment and my Tax Bill - and the money was just sitting there in my escrow account. I wasn't going in and double-checking that they were paying everything so didn't realize it until I got the cancelation notice from the Insurance Company. I figured if I need to remember to check up on them to assure they were paying my bills I might as well pay them myself.
Gill
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Re: To escrow or not to escrow your taxes

Post by Gill »

After a quick scan of the responses I don't believe one factor has been mentioned. It may be advantageous for you to make two tax payments in a year to maximize your income tax deduction. Having an escrow arrangement denies you the possibility of doing this.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
bling
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Re: To escrow or not to escrow your taxes

Post by bling »

if you're on this forum then you're probably the type that can DIY.

one benefit not mentioned yet is you can get better rates with an escrow if you refinance. i recently refinanced and this was enough of a cost difference that i added the escrow back into my mortgage. boy was i surprised when the closing disclosures came and i had to fund the next 4 months of property taxes, a year's worth of home insurance, plus closing costs. i rolled it all in the loan. once everything switches over i'll ask to close the escrow again.
Wrench
Posts: 195
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Re: To escrow or not to escrow your taxes

Post by Wrench »

jimzerg wrote: Wed Nov 11, 2020 11:57 pm I recently purchased a $430k house and pay $724/month in property taxes which goes into escrow to the tune of almost $9000/year since Texas is a high property tax state. I did this because I was concerned about having too many credits at closing due to realtor rebates and loan credits even though I didn't actually need to do it (I put 20% down). This money gets taken out of my payment and put into an account and collects no interest and is usually paid in December at the end of the year that you lived there (2020 taxes are due in this coming January).

What are people's thoughts here on escrowing property taxes? I'm in sort of a no man's land outside city limits and the school district actually falls in a different county and a different tax authority. School district tax is about 60% of the tax. The rest goes to the county taxes and police, etc. That means if I get out of escrow I have to pay two different tax authorities at different periods of time. The school district makes you pay the entire tax owed at one time and gives you up to 3% discount if you pay in October as opposed to the January deadline. The county allows for a split payment tax payment where you can pay 1/2 in November and 1/2 in June for no penalty and this makes the most sense; no discount though. That means I would have to track three payments and make sure they get there on time.

Note that I did not escrow insurance and will pay that from my credit card.

I recently set up an Ally account, which I've heard can make this easier with buckets, so my questions are:

1) Do you recommend dropping escrow and paying your own property taxes?

2) What kind of accounts would you use to pay them to perhaps accululate a few bucks in interest?

3) How would you set up your accounts to pay these taxes and not forget to pay them? Late penalties are steep.

Thanks for any advice you can give!

Jim
Escrow services are often lousy. Collecting more money than required, holding it without paying interest (not that it matters now, but once upon a time it did), missing payments, transferring to a new escrow company and losing stuff, etc. As soon as I could, I got out and paid my own insurance and taxes. In some cases you can pay with cc (as you do for insurance) so that is a 1-2% savings in cash back right there. Paying myself was less of a hassle for me than worrying about whether the escrow company was going to do it properly. Plus, I like to be in control of my money, not let someone else hold it in an account over which I have zero control.

Wrench
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