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How Much Are You Paying…

How Much Are You Paying…

To have someone else write a few checks for you?

I’m talking about escrow accounts, which are accounts that mortgage companies use to hold the money they’ve collected to pay property taxes and insurance on your behalf. They are also allowed to keep a cushion of 2 months’ worth in the account. This means that if your taxes and insurance would total $100 per month if you paid them yourself, your mortgage company could collect $116.67 per month from you. This would leave a cushion of $200 remaining in escrow. They would then pay the hypothetical $1200 per year in taxes. They would also pay insurance on your behalf, and let the $200 remain in the account.

Some mortgage companies require that you use an escrow account. Some charge a fee to opt-out, and others leave it up to you. The fact that some companies require you to participate, and others charge a fee not to should be a sign there’s money to be made with escrow money.

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If you’re able to save the amount earmarked for taxes and insurance yourself, you can earn interest on it. I’m happy to say that our mortgage company is one of the ones that allow you to just opt-out. (Or at least that’s the impression I gathered from my phone call this morning. I’ll know for sure in about 13 business days.) In our case, this change should lead to approximately $80 earnings in interest per year. For eighty bucks I can remember to write a few checks each year. Especially instead of having the mortgage company do it for me. Of course, the greater your potential property taxes & insurance, the more money you could earn in interest by taking care of things yourself. And over time, that interest will grow.

View Comments (3)
  • This is very interesting. I never knew they mortgage company actually collected money from me for doing this–it just was sort of an automatic thing–put insurance and taxes in with the mortgage payment.

    Something Ill have to investigate further.

    Thanks for the blog.

  • You should also check the laws of your state. In WI, you cannot force someone to escrow (at least not on traditional mortgages). I was already insistent that we would self-escrow so was delighted when my broker came back and said “No problem! It doesn’t matter what lender you choose you can do that.” Woohoo! The other advantage for me is that we’ve chosen to save an additional 10% every year towards taxes, and when the assessments increased last year, I was one of the few happy folks: I was already saving enough such that I *still* had extra in the account after the increase!

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