When you get a mortgage, the lender usually adds real estate taxes and insurance premiums to the monthly house payment. The lender sets aside this money in what is called an escrow account (sometimes it’s called an impound account). An escrow account ensures that the taxes and insurance will be paid on time. This protects the lender from tax liens and uninsured losses that the borrower can’t repay.
How escrow accounts are managed
The amount in the escrow account varies during the year due to tax assessments and insurance premium adjustments. The lender typically will cover any shortfalls until it can adjust your monthly payment to make up for tax hikes and premium increases. Your monthly mortgage payment will fluctuate from year to year, even on long-term fixed-rate loans.
Can I avoid escrow?
In some cases, you can avoid escrow. Some lenders allow you to pay your own property taxes and home insurance premiums, especially if your loan-to-value ratio is below 80%. But don’t be surprised if the lender boosts your interest rate to compensate for the additional risk it is assuming.
Should you avoid escrow?
Should you set up an escrow account for a new home or shoulder the responsibility of paying taxes and homeowners insurance on your own? The simple answer: It depends.?? Without an escrow account, you have to pay tax and insurance bills when they are due, and they often are large sums.
Am I a good saver?
The first thing to ask yourself is whether you’re a saver by nature. If not, you’re better off having an escrow account.
Where else can I put my cash?
If you’re good at saving money, it doesn’t make sense to make monthly payments for something you need to pay only once or twice a year.
Will it make a difference with my bank?
Setting up an escrow account with your lender could result in you being offered a lower interest rate on your loan, which can bring substantial savings over the long haul.
Whose responsibility is it?
If you have an escrow account, it’s the lender’s responsibility to pay all your tax bills in a timely fashion. In some places, such as Texas, customers may have to pay separate tax bills to the county, school district, and water and sewer districts, rather than having them rolled together into one county tax bill.
Educating clients and lending a helping hand is what has allowed HomeWay Mortgage to become one of the leading local mortgage companies in the area. We look forward to assisting you with all of your questions, and your lending and refinancing needs. Call Us or just stop by our office for a free, personal consultation with one of our team members!