Is it better to roll your taxes and insurance into your cash out refi loan or just pay them separately?
It doesn't really matter and somewhat depends on how responsibly you handle money. Paying them separately gives you a few extra months of letting the money sit in an interest bearing account but that's about it. Once the loan is paid off you will have to learn to do it on your own though
@Aaron K. Thanks Aaron kinda figured it was a preference thing.
@Justin Seng It really is just a preference. Some people don't like that larger monthly payment or possible fluctuations in their payments when there is an escrow shortage.
If you don't want to think about it and would rather have the structure of the lender collecting the money each month for you, then now would be a good opportunity to set up the impound account.
@Stephanie Irto Thanks! Do lenders prefer to have the escrow account? Would they back out if I decided to not set up the account?
I always prefer not to escrow when given the choice. It gives me better average cash flow. Also, the lender will keep a certain amount of cushion so it will cost you more out of pocket overall.
@Mark Whittlesey That’s kinda what I was thinking Mark. And it seems like they always say there wasn’t enough in escrow and you owe money.
@Justin Seng If you're putting 20% down or more, you usually have the option to decide whether or not you want the account. It should not affect the loan decision. Some lenders may charge a nominal amount to waive the account, but many do not.
@Stephanie Irto Gotya thanks!
The timing on this post was impeccable as I was just asked by my insurance broker the same thing. Thanks everyone for the info!
My FHA loan required the escrow. My next multi family will be 20% down and the bank said; "I'm assuming you won't want to escrow". So, ask the lender first and then make a decision if need be.
@Justin Seng I agree with numerous people before me, being that it is a complete preference. The only thing I'll note, because I work in the insurance industry, is some companies give a discount if you pay the premium in full (which the escrow does). If you're about being the most efficient with insurance costs and cant cash flow the full annual premium up front, you may want to consider escrowing for the additional discount(s).
There's really no truly wrong decision here. If given the choice, I prefer to keep the money in my bank account versus the lenders bank account. Having said that, once you give it to the lender, if something comes up, you cannot ask for the money back so flexibility is an added bonus in your own account. If you've used a HELOC, you can pay down the HELOC to reduce the interest payments until your taxes are due. As @Aaron K. mentioned above post, the caveat is that you are financially responsible :)