Escrow, my excrow
Earlier this year, I received a slight shock when my monthly mortgage payment increased. At first I thought that it was an error (and actually, it did turn out to be an error) but it turned out that my property taxes had increased for the year.
Why does the mortgage company care if you pay your taxes? Simply because the town you live in has first lien on the property. That's right, if you don't pay your taxes, you are out of there and the mortgage company is left with little recourse. The mortgage company recognizes that they are at risk if you don't pay your taxes, so they force you to pay every month to mitigate their risk.
I was under the erroneous impression that the escrow was something temporary and then my wife and I would be on our own, but I was mistaken. For the life of my loan, we will always have to make the escrow payment. I asked if I could do a self-escrow, but they said that option is only for people with 15-year mortgages. The main reason I wanted to self-escrow is that in calculating the required monthly payment increase, they took the actual increase that my taxes went up plus a "cushion" of 16%. Now I realize that I will get that money back at the end of the year plus (minimal) interest. That being said, I thought I'd pass this little tidbit on to others who might have to deal with this later on in life. Be aware of it when planning your monthly expenditure for buying a house.
11:49 AM
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3 comments:
I think escrow accounts on mortgages are probably a good thing for most people because it seems that most people don't have the foresight or the discipline to make sure they have enough money on hand for when tax time does come around.
Granted, if you are one of those people who can manage money wisely and will be prepared for the tax bill, then yes, you will save a little money by not overpaying to an escrow account. But again, I think for most people, overpaying slightly each month on an escrow payment is much less painful than having to pay a single large lump sum tax payment.
our credit union doesn't have us escrow, maybe because now we have enough equity? Worth asking again in a few years.
While the always tend to overestimate the amount required for taxes, if you're like me and have several properties, you're glad they take care of the taxes[and in my case the insurance]. Thats just one less thing to bother about!
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