Should I have an Escrow account or not ?

4 Replies

I'm about to buy my 3rd investment SFH and all the homes I own including the one I live in have escrow accounts. Is there any advantage of not haveing an escorw and just paying your taxes and insurance at the end of the year ? Or will it just be an extra hassle I'll have to deal with ?

I'm a physcian and very busy at work, but if there is any advantage other than having a stable monthly payment instead of a mortgage payment that changes each year then I'll try it out for this coming investment.  

Thanks

Moe

I'd also be interested to hear other people's thoughts on what potential advantages of not escrowing would be. The main advantage that I see is that you would have access to use that money throughout the year (assuming you ensure sufficient funds are available when the taxes/insurance are do). However, the wisdom of trying to use that money for a short-term investment begs further discussion. 

Personally, I chose to escrow for two reasons. First, the lender offered a discount on closing costs. Second, it saves me from having to manage the payment of my taxes and insurance bills. 

Disclosure:  I am a lender.

I personally would not escrow if given the choice.  1. when lenders set up escrow accounts, they typically add in a buffer (by the time taxes are due, they are holding 14 months worth of taxes).  2. as you alluded, by not escrowing, you control your cash and have the use of it during the year.

There is a potential downside to not escrowing.  If you are not good at managing your money, you might run into CF problems when the tax bill and/or insurance bill come due.

People in California that get Christmas bonuses and income tax refunds every year often elect not to escrow, since our property taxes are due right around Christmas time and tax season. 

you are paying taxes and insurance one way or the other …….as strictly a convenience and also a decent way to  budget for these items - I would recommend  an impound account  …..also most lenders  will charge a .25% fee  to waive impounds