My Self-Escrow Plan

This month, the first half of my property tax bill is due.  The second half will come due in December.  For many people with mortgages, this date passes without a thought.  As part of their mortgage payment, they also pay into an escrow account.  Every month, they pay 1/12th of their property tax and insurance bill, and then when the bill comes due, the mortgage company takes care of those bills for them.

I opted to self-escrow.  That means that the money I pay to my mortgage company every month is simply for the mortgage itself.  Instead of sending the extra money to the mortgage company, I put it into a separate budget category for use at the later date.  This year, I’m considering taking it one step further and actually setting up a direct funds transfer so I don’t have to think about it at all.

What’s the benefit of paying into an escrow account?  Well, sometimes, you can get a lower mortgage payment.  My credit score was high enough that it wasn’t an issue, but if I could have been paying less interest, I probably would have had an escrow account.  Also, it’s one less thing you have to worry about.  You don’t have to worry about setting money aside every month so that you have the funds when the property tax bill comes.

What’s the benefit to my method?  Well, I keep my money in my control.  And I earn the interest, not the mortgage company.  With rates as they are, I admit, it’s not a ton of money, only about $20, but I’ve got over 25 years left on my mortgage.  Rates may increase.  Rates will probably increase.

Also, one trick that I do is that when I come into “extra” money, maybe a bonus at work or a three paycheck month, I put a chunk of that into my insurance and property tax budget.  The money wasn’t part of my normal budget, so I don’t even notice it missing.

Really, though, the question is what works best for you.  If you still aren’t good at budgeting and are worried about being able to set aside the money, then by all means, go for the escrow account with your mortgage company.  If they’re giving you a better rate, take it.  And they may not give you an option.

But if you’re good with budgets and you like seeing interest add up, then see if it’s an option for you.

Megan Smith

Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:

In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance.  It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information.  It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck.  While that was working for me, clearly I needed a better plan.

While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.

Except that’s not what an emergency fund is for.

So I did a lot of research, read a lot of blogs, and decided that I needed a plan.  I needed to budget.  I needed to know what I was spending my money on.  I needed to prepare for the future.

I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way.  I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.