Are taxes and insurance usually included in a mortgage payment?

13 Replies

Are taxes and insurance paid separately or included in a mortgage payment?

usually included.

Yes, with the exception of portfolio loans.

You have the choice to escrow taxes and insurance or not. Many times banks will give you a discount if you escrow.

Thanks everybody for your responses.

To Gautam.

What exactly does it mean to escrow taxes and insurance?

When paying taxes and insurance separately:

Late mortgage = default.

Late taxes = late fee.

Late insurance = hassle.

Originally posted by @Tyler Shanks:

Thanks everybody for your responses.

To Gautam.

What exactly does it mean to escrow taxes and insurance?

Very simply put, it means to include them in your mortgage payment. Your lender pays them for you, then you pay them monthly to your lender.

With my Homepath loan, I had no choice but to escrow the taxes and insurance with the lender.  With our personal residence it was our choice, but I did choose to escrow them (It's just easier for me).  I have heard many horror stories about lenders not paying property taxes (on time or AT ALL) and so I ALWAYS check on that, to ensure that they're doing what they're supposed to.

I pay them myself. I get tired of variable monthly payments because they try to nail it down to a hair's width. It's two extra payments a year you have to make.

Originally posted by @Scott S. :
Originally posted by @Tyler Shanks:

Thanks everybody for your responses.

To Gautam.

What exactly does it mean to escrow taxes and insurance?

Very simply put, it means to include them in your mortgage payment. Your lender pays them for you, then you pay them monthly to your lender.

Ok that makes sense. This leads me to another question. How would I calculate the insurance and taxes when analyzing a deal in this type of scenario?

@Account Closed  

What type of scenario? Check your county tax assessor to see what the taxes run per year, then divide by 12. For insurance, call your broker. Insurance for me runs ~800 per year, or 66 per month.

Hi Tyler-

On most residential mortgages (especially homeowner mortgages) the lender usually keeps funds held (i.e. in escrow) to pay the property taxes and insurance. (That's why you often see mortgage payments listed as "PITI", which means Principal, Interest, Taxes, and Insurance). This way the lender knows that the insurance is actually being paid, which is important from their perspective since they have a financial interest in the property! As others have noted, not all lenders require this.

When you are doing your analysis, just use the numbers you have for tax and insurance and include them in your expenses. They are part of your fixed costs, along with repairs, mgmt, utilities, cap ex, etc. (Since the amount you will pay for your debt service will vary a lot depending on your downpayment and interest rate you can't really consider that a fixed cost.)  Take your gross income, subtract the fixed costs. That's your Net Operating Income. Then you can run different scenarios based on various loan term/downpayment parameters. In the end of course (once you buy the place), it doesn't matter whether the tax and insurance payments are made along with your mortgage payments or if you pay them yourself. They are still expenses that you deduct.

BTW, some mortgage calculators like the ones on the Zillow-type sites attempt to give you a "PITI" figure. Avoid those, use a calculator that just does principal and interest. Get the real tax and insurance numbers on your own to be sure they're right.

Is that what you were looking for?

Hello Tyler,

It all depends on what type of mortgage program you're using. 

If it's conventional and it's over 80% most likely you'll have to escrow.  California is at 90%

If it's an FHA or VA loan you have to have impounds ( escrows ) no matter what

If it's LP open access and your current loan had impounds you'll have to continue with impounds.  If it's less than 80% and you didn't have impounds then you don't need to have them.

The best way to go about this is ask your loan officer or broker when you're ready to move forward or give them a specific scenario. 

Also remember that if you impound your taxes not only will you pay a monthly fee but depending on what time of year it is you'll have to put extra money in an escrow account. 

Say you were closing on a loan in June and you wanted to escrow your taxes and insurance.  Most likely the lender would require 5 months of escrow and taxes impounded or saved up in an escrow account.

Example:

If your mortgage payment is $1,000.00 and your impounds are $200.00 your monthly mortgage payment will be $1,200.00. You'll notice on your HUD-1 that you'll also be charged 5x40 for your insurance which = $200 and 5x160 for your taxes which = $800 So that's an extra 1K that you'll need at closing however as long as your payments are always submitted on time when you refinance or sell you'll get that 1K refunded to you.

Originally posted by @Jean Bolger :
Hi Tyler-

On most residential mortgages (especially homeowner mortgages) the lender usually keeps funds held (i.e. in escrow) to pay the property taxes and insurance. (That's why you often see mortgage payments listed as "PITI", which means Principal, Interest, Taxes, and Insurance). This way the lender knows that the insurance is actually being paid, which is important from their perspective since they have a financial interest in the property! As others have noted, not all lenders require this.

When you are doing your analysis, just use the numbers you have for tax and insurance and include them in your expenses. They are part of your fixed costs, along with repairs, mgmt, utilities, cap ex, etc. (Since the amount you will pay for your debt service will vary a lot depending on your downpayment and interest rate you can't really consider that a fixed cost.) Take your gross income, subtract the fixed costs. That's your Net Operating Income. Then you can run different scenarios based on various loan term/downpayment parameters. In the end of course (once you buy the place), it doesn't matter whether the tax and insurance payments are made along with your mortgage payments or if you pay them yourself. They are still expenses that you deduct.

BTW, some mortgage calculators like the ones on the Zillow-type sites attempt to give you a "PITI" figure. Avoid those, use a calculator that just does principal and interest. Get the real tax and insurance numbers on your own to be sure they're right.

Is that what you were looking for?

Yes you are very helpful. Thank you

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