I’ve been escrowing our property taxes for 5+ years. With our first condo, we did an 80% 1st, 10% 2nd, and 10% down payment, so we had to escrow our property taxes with the mortgage company. However, after our property appreciated and we were able to only have 1 mortgage for less than 80%, and thus we were allowed to pay our own property taxes.
I’ve noticed on reading people’s budget’s online a lot of people appear to escrow their property taxes with the mortgage. However, they complain about the increase in escrow amount, or too low of an escrow amount and needing to pay extra unplanned, and bills not being paid on time.
When we had our payments escrowed I hated it. We were constantly worried about our property taxes being paid on time, and found that it WASN’T. Also the amount they were withholding were more than necessary. The mortgage company wanted at least 2-3 months buffer, which I felt was unacceptable. At least in CA, we knew how much we owed 2x/year and it changed very little because of Propsition 13.
So when the oppportunity came for us to bank the money and earn interest on our property taxes we did it. I can say it’s not for everyone. You have to be disciplined. However it’s worth less stress over worrying if you have saved enough or not enough and if the bill will be paid on time.
What do you do? Does the mortgage company escrow your property taxes for you, or do you do it yourself?
8 responses so far ↓
1 Barb1954 // Jul 4, 2008 at 5:14 pm
Our mortgage companies have always required the escrowing of property taxes and homeowners insurance, I believe, and we’ve never had problems. I always call to make sure the payments have gone out on time. Since our property taxes increase every year, the escrow account is analyzed every spring to calculate the correct amount for the next 12 months. We can either send a check to make up any shortfall in the account or make it up through increased payments during the next year. Having enough saved is never the fault of the mortgage company and its escrow policies. That blame lies squarely with our spendaholic local governments and school boards who are going to tax us out of our home one day.
2 frugal zeitgeist // Jul 4, 2008 at 9:01 pm
You know, I’ve never been asked to escrow a cent. Maybe it has something to do with living in a c0-op.
3 kitty // Jul 6, 2008 at 6:03 pm
I had an escrow account on the very first condo I lived in. On the second one, I was offered a possibility to pay my own taxes, and I said yes. I liked it better – I am responsible for paying it on time and not the bank; my money can stay in the bank until it is needed. The last property, I asked specifically to pay my own taxes. They said there was a .25% fee for it, but I agreed because I really like paying my own taxes better. In both of these properties my downpayment was over 20%. Now my place is paid off, so I naturally pay my own taxes. Why pay something in advance when it isn’t necessary. I don’t remember what kind of interest they pay on escrow accounts, but I am sure they aren’t going out of their way to find better rates.
I am a bit lucky because I earn enough to cashflow the payments, so I don’t need to worry about having a specific account for it or save money in advance. I can just pay property taxes from my paycheck when I get the bill. But it seems to me that even if one has to save specifically for it, it is much better to manage one’s own “escrow” account. Depends on the individual preferences though.
4 LivingAlmostLarge // Jul 7, 2008 at 10:44 am
I’ve found that escrowing like I said is better on our own. But I can see why people have their mortgage companies do it. It is easier to not worry.
5 Meg // Jul 8, 2008 at 12:00 am
I don’t escrow my tax or insurance on my condo, and it does take discipline to make sure you “save” your taxes every month so you have enough to make payments at the end of the year.
But when I bought my first rental property they mandated it (no matter how much I put down, this particular lender had a rule all investment properties had to escrow). It’s convenient not to worry about it with my rental; one payment per month and I’m done.
However now I’m buying a new rental and my new lender isn’t mandating escrow. I have to admit I’m excited because that’s over $600 a month I can save and earn interest on.
But the main difference I notice is that not escrowing is seriously lowering my closing costs because I don’t have to pay a year of tax and ins in advance like I would if I were escrowing; instead I am on my own and can jump right into monthly payments if I want with the insurance company.
7 manuel newman // Jul 31, 2009 at 10:32 am
if you do not enough money in escrow to pay your property taxes, is the mortgage company going to pay to keep the state from putting a lein on the property?
8 LAL // Aug 3, 2009 at 11:49 am
Yes , then they charge it to you in a one time payment. Then they increase your monthly escrow fee.
Carnival of Financial Learning #7 - Snow Addition | Financial Learn - Jul 13, 2008
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