Tuesday, February 15, 2005

Management of Mortgage Escrow



Yesterday I faxed a letter to my mortgage company, requesting that they delete my escrow account for property taxes and homeowners insurance. I wish to manage those payments myself. My inspiration for this? A post on another personal-finance blog which I frequent.

Whether or not they'll let me actually do this is an iffy proposition, I'm thinking. I called the mortgage company yesterday morning regarding this, and I got the distinct feeling that they weren't going to give my money without a fight. Their reply was an expected, "Well, the contract you signed states that we must manage the escrow account," and so on. I suggested that perhaps a refi was in order — and not necessarily through their bank. At that point the customer service representative went on to give me their fax number, and suggest that I write a letter explaining my request. Such requests, she said, are handled on a case-by-case basis.

Hopefully, my case is pretty good. This company has handled my mortgage for over two years. I make my mortgage payments automatically and electronically, so my payment record is exemplary. I have enough equity in the home to be well below a 75% loan-to-value ratio. Neither my property taxes nor my insurance are due for payment until November of this year, so no conflicts should arise there.

I am quite certain I have the discipline required to set aside the necessary funds for property taxes and homeowners insurance each month, since I do this sort of thing for several other irregularly-spaced bills already. Why should I allow the mortgage company to hold my $1,800 in escrow, plus the required "cushion," when I can hold it myself and earn the interest on it?

Perhaps more importantly, I figure that my managing these payments myself, I can keep tabs on what's happening with my property taxes and insurance rates. As it stands now, I know what I'm paying for these items. But I really have no idea how their rates have changed over the years, and that would be good to know. (So I can better judge whether it's time to shop for another insurance company, for example.).

However this turns out, I'll keep you posted.

Labels:

— Posted by Michael @ 12:15 AM








4 Comments:
 

I'm really interested in seeing how this works out for you.

When I bought my condo last April, it was my first mortgage, and it seemed much easier to allow the mortgage company to handle the escrow account for real estate taxes. I also wanted to little more financial discipline under my belt before I committed to something that require saving monthly for a yearly payment.

I'm thinking of starting on a smaller scale - paying my insurance premiums on a 6-month basis, instead of monthly by automatic deduction.

Anyway, do let us know how it works out.

 

This post has been removed by a blog administrator.

 

I figured I might be able to comment intelligibly on this particular subject, so here goes.

Generally, the first position mortgage wants to handle your payments for taxes and insurance, which is probably obvious why... they want to protect THEIR investment. First, if the house burns to the ground and no insurance has been acquired for the property, the homeowner will likely have NO means of repaying the home loan. Second, if the taxes aren't paid, then uncle Sam will take the house... ooops. Either way, the mortgage company will likely lose out on their investment. Basically, it's the mortgage company's way of politely saying, "We don't think you're responsbile enough to protect OUR investment." If I were in their same shoes, I'd probably want the same security.

Now, as a mortgage broker in the state of Washington, I can tell you that many lenders will increase your percentage rate on the loan if you decide to handle the taxes and insurance for yourself. Again, their way of saying that they'd rather be the responsible party. I've seen these percentage rates vary from 0.25 to a full 1% to eliminate the "impounds" (another name for your mortgage escrow account). Therefore, Mike, if you are requesting to handle the payments yourself, they MIGHT try to tack on a percentage rate increase in your loan... OR since you've been such a great borrower, they might just let you do so without any penalties.

Now, what can you do if you decide to make the payments yourself? Well, you can probably figure this one out for yourself. You could simply allow your employer to automatically deposit 1/12 of your total Taxes+Insurance into a new bank account that you DO NOT EVER TOUCH. Or perhaps, a money market where some DECENT interest could be earned... "decent" being relative in comparison to the current savings account rates. You could make a few extra bucks this way and also keep track of your exact tax and insurance payments. I, personally, like to know EXACTLY where my money is going, so this would be great. HOWEVER, if you decide to handle your taxes and insurance at the expense of an extra 0.25 percentage points on your loan... I think I'll just go ahead and let the mortgage company handle it. Besides, they send out escrow statements every so often so that you can keep track of the money in your escrow account.

Well, Mike et al. let me know what happens with your escrow!!!

Cheers

Brian Tucker, PhD, PE, NERD

 

dont ever take advice on mortgages from a mortgage broker either! They cant raise the rate of your loan if it isnt in the original contact. Thats BS and illegal. Mortgage brokers r scum!!LOL

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