Why is there always an escrow shortfall?

[meadowrue]

Every year like clockwork, a notice arrives telling us we have an escrow shortfall and our mortgage (total, with insurances and taxes) is going up. Next year it’s jumping up 4%. I don’t know if this is a property tax thing, or insurance, but isn’t the point of escrow to adequately estimate those costs and factor them into your monthly payment so at the end of the year you don’t have a shortfall? Why is the estimate always so inaccurate? Should we be shopping around for different insurance or is this more likely related to property tax?

[LotsaGray]

Every year like clockwork, a notice arrives telling us we have an escrow shortfall and our mortgage (total, with insurances and taxes) is going up. Next year it’s jumping up 4%. I don’t know if this is a property tax thing, or insurance, but isn’t the point of escrow to adequately estimate those costs and factor them into your monthly payment so at the end of the year you don’t have a shortfall? Why is the estimate always so inaccurate? Should we be shopping around for different insurance or is this more likely related to property tax?

Personally I would prefer that my escrow be a bit short vs long. Then again I can’t remember when my escrow ended. You should each year get a statement showing what was collected and what was disbursed and to whom. Since both insurance and property taxes can increase, you should look at the last few years to see why it increases.

The fact that if you don’t watch your insurance can climb and escrow hides this from you but I always knew what insurance was, how much it increased, etc. if your insurance is no longer competitive you should get quotes but relying on escrow increases to trigger this is not a best practice. You should know before the escrow company how much insurance is going up. They don’t care but you do.

[meadowrue]

Every year like clockwork, a notice arrives telling us we have an escrow shortfall and our mortgage (total, with insurances and taxes) is going up. Next year it’s jumping up 4%. I don’t know if this is a property tax thing, or insurance, but isn’t the point of escrow to adequately estimate those costs and factor them into your monthly payment so at the end of the year you don’t have a shortfall? Why is the estimate always so inaccurate? Should we be shopping around for different insurance or is this more likely related to property tax?

Personally I would prefer that my escrow be a bit short vs long. Then again I can’t remember when my escrow ended. You should each year get a statement showing what was collected and what was disbursed and to whom. Since both insurance and property taxes can increase, you should look at the last few years to see why it increases.

The fact that if you don’t watch your insurance can climb and escrow hides this from you but I always knew what insurance was, how much it increased, etc. if your insurance is no longer competitive you should get quotes but relying on escrow increases to trigger this is not a best practice. You should know before the escrow company how much insurance is going up. They don’t care but you do.

Thanks. I am going to look closely at costs and start shopping around with other insurance carriers. We have been happy with Nationwide but an extra $850/year seems like an excessive increase. I am assuming it’s insurance related but our home value has risen considerably this year and our property tax assessment came in higher so that could be part of it. I admit, I’ve been lax in investigating the increases. It’s bothering me now because we finally created a good working budget (much needed!) and this wasn’t part of it. I expected a small increase but not this much.

[gotoparks]

It doesn't matter who the servicer is for me. They always do an escrow analysis and point out the shortfall. I usually get the analysis with a letter. Mine goes up because insurance and taxes go up every year. Taxes are the real killer for me.

[Gryphon]

Going over my escrow statements, I had a shortfall more often than not. The lenders never estimated any increase in the upcoming year's property taxes or homeowners insurance when determining the next year's escrow payment, they just assumed there would be zero increase and used the last actual payments as the next estimated payment. So every time those bills increased it resulted in a shortfall.

[Mr. Rumples]

The rules for the amounts and so forth changed after 2008/2009. Here are the latest: https://www.consumercomplianceoutlook.o ... ompliance/

In VA, a number of localities have instituted tax relief for seniors and the disabled based on net worth (not just income). It varies by jurisdiction. Those folks are seeing escrow overages and subsequent adjustments down.

[teen persuasion]

When we had escrow, it bounced back and forth between over and under. It was a case of bad timing for the annual re-eval. We had property tax and insurance in January, and school tax in September. They always did re-eval in August. They used past bills as input. So they had year old school tax amounts, too low. There was also a minimum fraction they wanted to maintain every month, don't recall exactly, 5/12? So timing of the payments affected the monthly total needed. Use past actual numbers, come up a bit short, increase monthly escrow. Now have excess, must refund to us, and reduce monthly escrow. But new bills increase a bit, at next re-eval can't maintain 5/12 every month, increase escrow again. Rinse, repeat.

[SmileyFace]

Only you can answer the question of whether it is your insurance or property taxes or both that have had a large increase.
I got rid of my escrow account pretty quickly with my last mortgage. I discovered my mortgage company was actually late on payments and therefore were using my money to pay late fees that were their doing. Personally I was happy to manage these bills myself as it forced me to see insurance and property tax increases giving me the opportunity to shop around for insurance and/or challenge a tax assessment. See if you can dump escrow and do it yourself - take control.
My company typically had an excess (which I was not happy with - holding my money making minimum interest unnecessarily).

[theplayer11]

you don't monitor your property tax and homeowners ins costs?

[Grogs]

When we had escrow, it bounced back and forth between over and under. It was a case of bad timing for the annual re-eval. We had property tax and insurance in January, and school tax in September. They always did re-eval in August. They used past bills as input. So they had year old school tax amounts, too low. There was also a minimum fraction they wanted to maintain every month, don't recall exactly, 5/12? So timing of the payments affected the monthly total needed. Use past actual numbers, come up a bit short, increase monthly escrow. Now have excess, must refund to us, and reduce monthly escrow. But new bills increase a bit, at next re-eval can't maintain 5/12 every month, increase escrow again. Rinse, repeat.

This is the way mine always worked out when I had my mortgage. Year 1 they would say I had an excess, send me a check, and then lower the escrow payment for the next 12 months. Then Year 2 they would say there was a shortage and raise the escrow back to around where it had been before it was lowered. I never had big increases in taxes or insurance, so it was just a result of the simplistic formula that was used for the escrow forecast.

[guitarguy]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?

We bought our first house in 2009. Pretty much the bottom of the market crash or close to it. 3% down FHA loan, paying PMI, the whole deal. The loan originated with a small lender and then bounced around to BoA and Wells Fargo. No matter who was servicing the loan, the escrow was ALWAYS off. Being young 1st time homeowners that didn’t know our ass from our elbow, we were always super frustrated with having to pay a balance, with the payment going up too high and then getting a refund, etc.

As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

We pay the bills when they show up. It’s done on time and easy to track changes. Monthly payments to our “escrow” savings account are automated same as a traditional mortgage with escrow just separate from the P&I. We of course are responsible for estimating the costs we’ll owe, but this allows us to estimate a tad over what we expect so we’ll always be set when the bills show up. In the meantime we earn some interest on the funds. And bonus: we bake in our car insurance (and soon umbrella too, probably) to the escrow savings account too since we typically pay the balance in full the same time as the homeowners policy.

Anyhow…none of this is reinventing the wheel and probably many others here handle it similarly. Just throwing it out there…something to consider!

[Yarlonkol12]

How much has your taxes and insurance increased? Our property taxes have increased 50% in the past 3 years when property prices doubled here, insurance also much higher

[PeninsulaPerson]

you don't monitor your property tax and homeowners ins costs?

I admit, I’ve been lax in investigating the increases. It’s bothering me now because we finally created a good working budget (much needed!) and this wasn’t part of it. I expected a small increase but not this much.

No need to beat yourself up. People notice what they notice when they notice it.

If you can get out of the escrow arrangement, that will probably be better for you. More direct & remove the middleperson.

You're still paying for whatever escrow "covers" anyway. Might as well be "unprotected" from the knowledge of what those amounts are!

[ResearchMed]

Only you can answer the question of whether it is your insurance or property taxes or both that have had a large increase.
I got rid of my escrow account pretty quickly with my last mortgage. I discovered my mortgage company was actually late on payments and therefore were using my money to pay late fees that were their doing. Personally I was happy to manage these bills myself as it forced me to see insurance and property tax increases giving me the opportunity to shop around for insurance and/or challenge a tax assessment. See if you can dump escrow and do it yourself - take control.
My company typically had an excess (which I was not happy with - holding my money making minimum interest unnecessarily).

[emphasis added]


Is this really allowed, for the escrow company to be late paying and then use the owner's money to pay late fees? If so, what's their incentive to pay on time, ever??

If "paying late" is entirely the fault of the company, why aren't *they* on the hook for late fees?

RM

[Nowizard]

We have always assumed the shortfall is the projected one for the following year, not the present one.

Tim

[MathWizard]

Every year like clockwork, a notice arrives telling us we have an escrow shortfall and our mortgage (total, with insurances and taxes) is going up. Next year it’s jumping up 4%. I don’t know if this is a property tax thing, or insurance, but isn’t the point of escrow to adequately estimate those costs and factor them into your monthly payment so at the end of the year you don’t have a shortfall? Why is the estimate always so inaccurate? Should we be shopping around for different insurance or is this more likely related to property tax?

Because prop taxes and insurance go up.

In my case, it really was never a true shortfall, because the escrow company figured escrow to have a 2 month reserve, so I was giving them a 2 month interest free loan for the life of my mortgage. This is likely part of their business model for handling the transactions.

[TN_Boy]

you don't monitor your property tax and homeowners ins costs?

I admit, I’ve been lax in investigating the increases. It’s bothering me now because we finally created a good working budget (much needed!) and this wasn’t part of it. I expected a small increase but not this much.

No need to beat yourself up. People notice what they notice when they notice it.

If you can get out of the escrow arrangement, that will probably be better for you. More direct & remove the middleperson.

You're still paying for whatever escrow "covers" anyway. Might as well be "unprotected" from the knowledge of what those amounts are!

+1

We never escrow. So far (across several houses) I've always been able to avoid an escrow account by simply asking at the time we get the mortgage. We pay mortgage, taxes, homeowners insurance, etc ourselves. There is a never a worry that an escrow company is making a mistake. And obviously, it means we are looking at the bills themselves closely.

[Outer Marker]

One observation - if you use automatic billpay, make sure you update your payment by mid December. Duh. I screwed this up and my lender rejected the "short" payment in January, then I found myself battling to get the late payment fees rescinded, etc. My escrow went up again this year and I will not be repeating that mistake.

[Tom_T]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?

We bought our first house in 2009. Pretty much the bottom of the market crash or close to it. 3% down FHA loan, paying PMI, the whole deal. The loan originated with a small lender and then bounced around to BoA and Wells Fargo. No matter who was servicing the loan, the escrow was ALWAYS off. Being young 1st time homeowners that didn’t know our ass from our elbow, we were always super frustrated with having to pay a balance, with the payment going up too high and then getting a refund, etc.

As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

We pay the bills when they show up. It’s done on time and easy to track changes. Monthly payments to our “escrow” savings account are automated same as a traditional mortgage with escrow just separate from the P&I. We of course are responsible for estimating the costs we’ll owe, but this allows us to estimate a tad over what we expect so we’ll always be set when the bills show up. In the meantime we earn some interest on the funds. And bonus: we bake in our car insurance (and soon umbrella too, probably) to the escrow savings account too since we typically pay the balance in full the same time as the homeowners policy.

Anyhow…none of this is reinventing the wheel and probably many others here handle it similarly. Just throwing it out there…something to consider!

How does this help him? He still owes the same amount, but now you've turned a simple monthly automated process into one that requires intervention and tracking.

[Outer Marker]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?
...
As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

Lenders typically charge an additional 0.25% to waive escrow. No way that is worth it IMHO. Yes, its a small annoyance at times and I am better at paying my bills that the mortgage servicer, but I'm not willing to pay extra for the privilege. On a $500,000 loan, that's $1,250 - or about the same as my homeowner's policy that I'm being escrowed for.

[pizzy]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?
...
As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

Lenders typically charge an additional 0.25% to waive escrow. No way that is worth it IMHO. Yes, its a small annoyance at times and I am better at paying my bills that the mortgage servicer, but I'm not willing to pay extra for the privilege. On a $500,000 loan, that's $1,250 - or about the same as my homeowner's policy that I'm being escrowed for.

We began with escrow in 2020, recently removed it. No charge. Current servicer is Chase.

[Outer Marker]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?
...
As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

Lenders typically charge an additional 0.25% to waive escrow. No way that is worth it IMHO. Yes, its a small annoyance at times and I am better at paying my bills that the mortgage servicer, but I'm not willing to pay extra for the privilege. On a $500,000 loan, that's $1,250 - or about the same as my homeowner's policy that I'm being escrowed for.

We began with escrow in 2020, recently removed it. No charge. Current servicer is Chase.

I seem to recall way back when that I was able to get a lender to waive escrow a few years into a loan after they had screwed up the payments a few times and I complained. I've done many refi's and never been able to get it waived at the outset without the 0.25% fee - despite LTV of under 50%. Maybe I'll see if LoanDepot would consider it. Would be nice, but not worth paying for.

[TN_Boy]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?
...
As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

Lenders typically charge an additional 0.25% to waive escrow. No way that is worth it IMHO. Yes, its a small annoyance at times and I am better at paying my bills that the mortgage servicer, but I'm not willing to pay extra for the privilege. On a $500,000 loan, that's $1,250 - or about the same as my homeowner's policy that I'm being escrowed for.

I've always been able to get the fee to waive escrow ... waived. If I couldn't, it would be a harder decision. I still might do it ...

[TN_Boy]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?

We bought our first house in 2009. Pretty much the bottom of the market crash or close to it. 3% down FHA loan, paying PMI, the whole deal. The loan originated with a small lender and then bounced around to BoA and Wells Fargo. No matter who was servicing the loan, the escrow was ALWAYS off. Being young 1st time homeowners that didn’t know our ass from our elbow, we were always super frustrated with having to pay a balance, with the payment going up too high and then getting a refund, etc.

As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

We pay the bills when they show up. It’s done on time and easy to track changes. Monthly payments to our “escrow” savings account are automated same as a traditional mortgage with escrow just separate from the P&I. We of course are responsible for estimating the costs we’ll owe, but this allows us to estimate a tad over what we expect so we’ll always be set when the bills show up. In the meantime we earn some interest on the funds. And bonus: we bake in our car insurance (and soon umbrella too, probably) to the escrow savings account too since we typically pay the balance in full the same time as the homeowners policy.

Anyhow…none of this is reinventing the wheel and probably many others here handle it similarly. Just throwing it out there…something to consider!

How does this help him? He still owes the same amount, but now you've turned a simple monthly automated process into one that requires intervention and tracking.

Paying property tax and homeowners insurance is a once a year thing. They send me a bill. We pay the bill. The mortgage payment itself can be automated. So you are really only tracking two things, once a year. Well worth knowing the right thing is being done, at least to me.

[rob]

Local taxes always seem to go up? We flip flop because the local taxes are higher for Q1 & Q2 than Q3 & Q4 (I have no clue why). They recently mailed a check as it's above whatever limit they have then in a couple of quarters will get the projected shortage notice. It's annoying but I just let them adjust the monthly amount because I could not be bothered making payments to even their life out.

Oddly, the current one does not require that we escrow insurance - just taxes.

[hoofaman]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?
...
As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

Lenders typically charge an additional 0.25% to waive escrow. No way that is worth it IMHO. Yes, its a small annoyance at times and I am better at paying my bills that the mortgage servicer, but I'm not willing to pay extra for the privilege. On a $500,000 loan, that's $1,250 - or about the same as my homeowner's policy that I'm being escrowed for.

The last 2 mortgages I had through BoA there was actually a small discount for not using escrow for taxes and insurance, so I opted to not have escrow on my last 2 mortgages as I preferred that anyway, allows me to pay those things when they are due using rewards credit card. Although I do remember it requiring a certain LTV

[bsteiner]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?
...
As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

Lenders typically charge an additional 0.25% to waive escrow. No way that is worth it IMHO. Yes, its a small annoyance at times and I am better at paying my bills that the mortgage servicer, but I'm not willing to pay extra for the privilege. On a $500,000 loan, that's $1,250 - or about the same as my homeowner's policy that I'm being escrowed for.

We began with escrow in 2020, recently removed it. No charge. Current servicer is Chase.

I seem to recall way back when that I was able to get a lender to waive escrow a few years into a loan after they had screwed up the payments a few times and I complained. I've done many refi's and never been able to get it waived at the outset without the 0.25% fee - despite LTV of under 50%. Maybe I'll see if LoanDepot would consider it. Would be nice, but not worth paying for.

Some banks will waive the escrow for free. Some will do it for a small fee. Some won't do it at all.

[Tom_T]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?

We bought our first house in 2009. Pretty much the bottom of the market crash or close to it. 3% down FHA loan, paying PMI, the whole deal. The loan originated with a small lender and then bounced around to BoA and Wells Fargo. No matter who was servicing the loan, the escrow was ALWAYS off. Being young 1st time homeowners that didn’t know our ass from our elbow, we were always super frustrated with having to pay a balance, with the payment going up too high and then getting a refund, etc.

As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

We pay the bills when they show up. It’s done on time and easy to track changes. Monthly payments to our “escrow” savings account are automated same as a traditional mortgage with escrow just separate from the P&I. We of course are responsible for estimating the costs we’ll owe, but this allows us to estimate a tad over what we expect so we’ll always be set when the bills show up. In the meantime we earn some interest on the funds. And bonus: we bake in our car insurance (and soon umbrella too, probably) to the escrow savings account too since we typically pay the balance in full the same time as the homeowners policy.

Anyhow…none of this is reinventing the wheel and probably many others here handle it similarly. Just throwing it out there…something to consider!

How does this help him? He still owes the same amount, but now you've turned a simple monthly automated process into one that requires intervention and tracking.

Paying property tax and homeowners insurance is a once a year thing. They send me a bill. We pay the bill. The mortgage payment itself can be automated. So you are really only tracking two things, once a year. Well worth knowing the right thing is being done, at least to me.

That depends where you live. In my state, property taxes are due quarterly. Also, my taxes+insurance are $10,000/year. I prefer to spread that out. If there's an overage, they add $10/month or whatever. Also, this is anecdotal, but I've had mortgages for 30 years and have never, ever had a single problem with escrow. It's never even crossed my mind.

I can see the appeal of your approach, but I think it depends on the details.

[yolointopants]

Only you can answer the question of whether it is your insurance or property taxes or both that have had a large increase.
I got rid of my escrow account pretty quickly with my last mortgage. I discovered my mortgage company was actually late on payments and therefore were using my money to pay late fees that were their doing. Personally I was happy to manage these bills myself as it forced me to see insurance and property tax increases giving me the opportunity to shop around for insurance and/or challenge a tax assessment. See if you can dump escrow and do it yourself - take control.
My company typically had an excess (which I was not happy with - holding my money making minimum interest unnecessarily).

[emphasis added]


Is this really allowed, for the escrow company to be late paying and then use the owner's money to pay late fees? If so, what's their incentive to pay on time, ever??

If "paying late" is entirely the fault of the company, why aren't *they* on the hook for late fees?

RM

We had an issue with our escrow company who missed a payment and my homeowners insurance got cancelled. I kept telling them the payment wasn't posted...when are you going to pay? Well they sent the check literally two days prior to the due date so it wasn't received in time. I got a cancellation notice in the mail. So for 24 hours, they didn't have insurance on our house. I completely lost my mind, wrote complaint letters to the attorney general's office, made a written complaint to the CFPB. This was a serious serious lapse on the part of escrow, which is a subsidiary of the mortgage company (a credit union subsidiary). So yes, their screw ups can have significant consequences for the home owner. Imagine if something had gone wrong during that 24 hour period. Super low chance, but profoundly high consequence to me. Would have cost thousands in legal fees and out of pocket expenses to fix whatever happened if something went wrong.

[Outer Marker]

We had an issue with our escrow company who missed a payment and my homeowners insurance got cancelled. I kept telling them the payment wasn't posted...when are you going to pay? Well they sent the check literally two days prior to the due date so it wasn't received in time. I got a cancellation notice in the mail. So for 24 hours, they didn't have insurance on our house. I completely lost my mind, wrote complaint letters to the attorney general's office, made a written complaint to the CFPB. This was a serious serious lapse on the part of escrow, which is a subsidiary of the mortgage company (a credit union subsidiary). So yes, their screw ups can have significant consequences for the home owner. Imagine if something had gone wrong during that 24 hour period. Super low chance, but profoundly high consequence to me. Would have cost thousands in legal fees and out of pocket expenses to fix whatever happened if something went wrong.

I had the same issue last year. I contacted the insurance company and was told there was a grace period of like 30 days in which the policy would be reinstated retroactively even if there was a loss. Still, a very uncomfortable position to be in. At least some states have laws providing that the lender will be liable for the loss in such situations. see, https://evolveins.com/customer-resource ... homeowners

[bsteiner]

...
We had an issue with our escrow company who missed a payment and my homeowners insurance got cancelled. ...

...
I had the same issue last year. I contacted the insurance company and was told there was a grace period of like 30 days in which the policy would be reinstated retroactively even if there was a loss. Still, a very uncomfortable position to be in. At least some states have laws providing that the lender will be liable for the loss in such situations. ...

It works both ways. The lender is concerned that the borrower might forget to pay a premium, and the borrower is concerned that the lender might forget to pay a premium.

Depending on the insurance company, you may be able to set up automatic electronic payment of the premiums (even if the amounts vary).

Also, depending on the municipality, you may be able to set up automatic electronic payment of the property taxes (even if the amounts vary).

[Outer Marker]

I will see if LoanDepot will waive the escrow. Apart from the being more responsible than my escrow agent, there's a strategic benefit if SALT limit expires as provided by current law in 2025. I can pay my Dec. 31 property tax two days late on Jan 2 and eat the $200 late fee - which will net me $2,500 in tax savings in 2026 that would otherwise have been capped in 2025.

[invest4]

I will see if LoanDepot will waive the escrow. Apart from the being more responsible than my escrow agent, there's a strategic benefit if SALT limit expires as provided by current law in 2025. I can pay my Dec. 31 property tax two days late on Jan 2 and eat the $200 late fee - which will net me $2,500 in tax savings in 2026 that would otherwise have been capped in 2025.

Definitely preferable to do away with the escrow. Once I managed it, I will never go back.

[SmileyFace]

Only you can answer the question of whether it is your insurance or property taxes or both that have had a large increase.
I got rid of my escrow account pretty quickly with my last mortgage. I discovered my mortgage company was actually late on payments and therefore were using my money to pay late fees that were their doing. Personally I was happy to manage these bills myself as it forced me to see insurance and property tax increases giving me the opportunity to shop around for insurance and/or challenge a tax assessment. See if you can dump escrow and do it yourself - take control.
My company typically had an excess (which I was not happy with - holding my money making minimum interest unnecessarily).

[emphasis added]


Is this really allowed, for the escrow company to be late paying and then use the owner's money to pay late fees? If so, what's their incentive to pay on time, ever??

If "paying late" is entirely the fault of the company, why aren't *they* on the hook for late fees?

RM

Good questions. In my case they were claiming they were getting the bills late. I didn't believe them but didn't fight to recover the fees either - they didn't charge me to remove escrow (I didn't realize some lenders charged to do so) so I simply took it out of their hands.

[TN_Boy]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?

We bought our first house in 2009. Pretty much the bottom of the market crash or close to it. 3% down FHA loan, paying PMI, the whole deal. The loan originated with a small lender and then bounced around to BoA and Wells Fargo. No matter who was servicing the loan, the escrow was ALWAYS off. Being young 1st time homeowners that didn’t know our ass from our elbow, we were always super frustrated with having to pay a balance, with the payment going up too high and then getting a refund, etc.

As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

We pay the bills when they show up. It’s done on time and easy to track changes. Monthly payments to our “escrow” savings account are automated same as a traditional mortgage with escrow just separate from the P&I. We of course are responsible for estimating the costs we’ll owe, but this allows us to estimate a tad over what we expect so we’ll always be set when the bills show up. In the meantime we earn some interest on the funds. And bonus: we bake in our car insurance (and soon umbrella too, probably) to the escrow savings account too since we typically pay the balance in full the same time as the homeowners policy.

Anyhow…none of this is reinventing the wheel and probably many others here handle it similarly. Just throwing it out there…something to consider!

How does this help him? He still owes the same amount, but now you've turned a simple monthly automated process into one that requires intervention and tracking.

Paying property tax and homeowners insurance is a once a year thing. They send me a bill. We pay the bill. The mortgage payment itself can be automated. So you are really only tracking two things, once a year. Well worth knowing the right thing is being done, at least to me.

That depends where you live. In my state, property taxes are due quarterly. Also, my taxes+insurance are $10,000/year. I prefer to spread that out. If there's an overage, they add $10/month or whatever. Also, this is anecdotal, but I've had mortgages for 30 years and have never, ever had a single problem with escrow. It's never even crossed my mind.

I can see the appeal of your approach, but I think it depends on the details.

I'm sure it does depend upon the details. Our taxes and insurance are close to yours, but we don't have to pay anything quarterly (quarterly property taxes, that's annoying) so we just pay them when due.

I've never had an escrow problem either . But in the past, I've known people who did, one reason I prefer to avoid escrow. And in general, I like to control important bills like that. But it is doubtless true that most people with escrow accounts have no problems with them.

[meadowrue]

Appreciate all the responses. I had never considered waiving escrow and handling those payments myself. I’m not sure I want the additional item on my to-do list, and I definitely don’t want to pay an extra 0.25%. I am going to dig into this to determine what went up and will report back. When we pay off the mortgage in 10 years, I assume we’ll be done with escrow too? That’s what I assumed, that those bills will become our responsibility to pay when they show up. Thinking now that it’s probably a good idea to open a HYSA just for this purpose (when the time comes).

[guitarguy]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?
...
As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

Lenders typically charge an additional 0.25% to waive escrow. No way that is worth it IMHO. Yes, its a small annoyance at times and I am better at paying my bills that the mortgage servicer, but I'm not willing to pay extra for the privilege. On a $500,000 loan, that's $1,250 - or about the same as my homeowner's policy that I'm being escrowed for.

There was no charge to waive escrow on my last 2 mortgages. PenFed and Chase.

[guitarguy]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?
...
As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

Lenders typically charge an additional 0.25% to waive escrow. No way that is worth it IMHO. Yes, its a small annoyance at times and I am better at paying my bills that the mortgage servicer, but I'm not willing to pay extra for the privilege. On a $500,000 loan, that's $1,250 - or about the same as my homeowner's policy that I'm being escrowed for.

Deleted duplicate post.

[Tom_T]

Appreciate all the responses. I had never considered waiving escrow and handling those payments myself. I’m not sure I want the additional item on my to-do list, and I definitely don’t want to pay an extra 0.25%. I am going to dig into this to determine what went up and will report back. When we pay off the mortgage in 10 years, I assume we’ll be done with escrow too? That’s what I assumed, that those bills will become our responsibility to pay when they show up. Thinking now that it’s probably a good idea to open a HYSA just for this purpose (when the time comes).

Absolutely. Once your mortgage is paid off, welcome to the world of handling your property taxes and home insurance yourself. You do not want to miss payments.

[dukeblue219]

One observation - if you use automatic billpay, make sure you update your payment by mid December. Duh. I screwed this up and my lender rejected the "short" payment in January, then I found myself battling to get the late payment fees rescinded, etc. My escrow went up again this year and I will not be repeating that mistake.

Your lender didn't automatically adjust the amount of the bill pay? Yes, you're responsible ultimately, but that's on them for having a terrible system...

[Tom_T]

One observation - if you use automatic billpay, make sure you update your payment by mid December. Duh. I screwed this up and my lender rejected the "short" payment in January, then I found myself battling to get the late payment fees rescinded, etc. My escrow went up again this year and I will not be repeating that mistake.

Your lender didn't automatically adjust the amount of the bill pay? Yes, you're responsible ultimately, but that's on them for having a terrible system...

Agree. That's terrible service if true. I've dealt with a few lenders, and whenever there was a year-end shortfall, they'd give me the choice of either sending them a check to cover it, or adjusting the monthly amount (always on autopay.) It was never up to me to change the autopay amount myself.

[guitarguy]

One of the best things ever is to NOT do escrow at all. Be your own escrow service. OP: have you considered this route?

We bought our first house in 2009. Pretty much the bottom of the market crash or close to it. 3% down FHA loan, paying PMI, the whole deal. The loan originated with a small lender and then bounced around to BoA and Wells Fargo. No matter who was servicing the loan, the escrow was ALWAYS off. Being young 1st time homeowners that didn’t know our ass from our elbow, we were always super frustrated with having to pay a balance, with the payment going up too high and then getting a refund, etc.

As soon as we hit the mark that allowed us to get rid of the PMI (80% LTV and there might’ve been a few year requirement or something too I can’t remember), we did a refi to a 15 yr loan, dropped the PMI, and opted out of escrow. It was so freeing.

We pay the bills when they show up. It’s done on time and easy to track changes. Monthly payments to our “escrow” savings account are automated same as a traditional mortgage with escrow just separate from the P&I. We of course are responsible for estimating the costs we’ll owe, but this allows us to estimate a tad over what we expect so we’ll always be set when the bills show up. In the meantime we earn some interest on the funds. And bonus: we bake in our car insurance (and soon umbrella too, probably) to the escrow savings account too since we typically pay the balance in full the same time as the homeowners policy.

Anyhow…none of this is reinventing the wheel and probably many others here handle it similarly. Just throwing it out there…something to consider!

How does this help him? He still owes the same amount, but now you've turned a simple monthly automated process into one that requires intervention and tracking.

Of course he owes the same amount. Costs of the policies are costs of the policies. But:

1. He’s in control of the situation. There is nothing that happens that’s unexpected, and the uncertainty of the entire situation is removed.

2. He earns interest on the escrow funds instead of the bank. This, even if only a few hundred bucks, can help with a shortfall. Plus avoiding the shortfall is easier because he’s the one that sets the savings target. See #1.

3. It can still be a very simple and automated process, with only a couple short action items per year. Everyone may have their own opinion if saving hundreds of dollars (at the high rates the interest adds up pretty quick) is worth what…15 mins annually to pay the bills and setup or adjust the automated deposit to the savings account?

4. It can force one to look at the policy premium increases and maybe prompt one to shop around for a better price on the policies.

[SmileyFace]

Appreciate all the responses. I had never considered waiving escrow and handling those payments myself. I’m not sure I want the additional item on my to-do list, and I definitely don’t want to pay an extra 0.25%. I am going to dig into this to determine what went up and will report back. When we pay off the mortgage in 10 years, I assume we’ll be done with escrow too? That’s what I assumed, that those bills will become our responsibility to pay when they show up. Thinking now that it’s probably a good idea to open a HYSA just for this purpose (when the time comes).

They are already your responsibility- you are just trusting your mortgage company to pay the bills for you. Hopefully the middleman doesn't become late on making payments the way mine did.

[Outer Marker]

One observation - if you use automatic billpay, make sure you update your payment by mid December. Duh. I screwed this up and my lender rejected the "short" payment in January, then I found myself battling to get the late payment fees rescinded, etc. My escrow went up again this year and I will not be repeating that mistake.

Your lender didn't automatically adjust the amount of the bill pay? Yes, you're responsible ultimately, but that's on them for having a terrible system...

Agree. That's terrible service if true. I've dealt with a few lenders, and whenever there was a year-end shortfall, they'd give me the choice of either sending them a check to cover it, or adjusting the monthly amount (always on autopay.) It was never up to me to change the autopay amount myself.

I prefer to "push" the payments from my side rather than have them "pull" it from theirs. So, the autopay goof was entirely on me.