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.
I never have gotten the option to not to. A lot of mortgage companies don’t want to risk the property being foreclosed for non-payment of taxes to let you do it yourself (same with insurance, they want their investment protected). And this is on my experience with 3 different properties and about 10 different mortgages on those properties (yah for no-cost refinance to VA vets with a disability rating).