Do you escrow your taxes and insurance?

Question

For those of you with buy and hold rentals. Do you escrow your taxes and insurance as part of your monthly mortgage payments?

Or do you keep this money aside, such as in a savings account?

Jon Klaus · Answer

I don't escrow, but do build cash for end of year when taxes are due.

Kevin C. · Answer

I'm with Jon, no escrows here.

I'm quite capable of managing my finances well enough to handle paying my own taxes and insurance - been doing it for over 30 years now without issue.

I'm surprised so many allow a bank to manage their escrows for them - quite surprised really.

Steve Babiak · Answer

Actually, you don't have to do this if you escrow!  The lender will cover the shortage, and then in the next year they will increase the monthly impound amount by some factor to compensate for having given you a "loan" to cover the prior year's expense.  In other words, the lender will do that (or else they will be losing money giving you free loans).

Also, you want to get your tax bills to the lender during any discount period that you get (typically 2% discount if paid before the actual due date) and instruct them to pay that discounted amount.  Lender is required to pay the discounted amount.  I once had a loan where the lender neglected to make that payment as instructed - they were forced to pay the difference.  This is something you DO want to keep track of, whether the lender took any discounts you were entitled to receive.

Bryan Hancock · Answer

I used to set it aside, but now I escrow.  The huge cash swings just after Christmas suck without escrows!  I hate dealing with the taxing authorities too.  Sending in several checks to multiple taxing authorities is a PITA.

Kelvin K. · Answer

I am thinking that escrowing would be more of a convenience factor. Especially when you build up your portfolio of multiple properties, in different counties and states.

Each area may have different due dates, and methods of payment.. so its just a lot of administrative over head to keep track of each one and put aside enough funds for each property?

Also, if you choose to opt out for escrowing... can you opt in at a later stage and vice versa?

Kelvin K. · Answer

I am also thinking to escrow everything as well, just for the convenience factor and also that I won't have to come up with a huge amount when taxes are due.

But what happens when your taxes and insurance changes.. Does your lender review these amounts yearly, in order to adjust the monthly contribution?

Bryan Hancock · Answer

RESPA has policies about how the escrow changes annually and when the lender has to refund money.  You can find this quite easily doing a Google search if you want to.

Countrywide's site used to break this down in detail.  They are now BOA and this functionality is gone.

Steve Babiak · Answer

Your monthly escrow contribution should be re-evaluated by the lender every year, and adjusted upward or downward (depending, of course).

Freddy C. · Answer

I refi'd about a year and a half ago, and used that opportunity to get out of escrowing....

Freddy C. · Answer

I agree that escrowing would be more convenient and perhaps even more cost-effective as one's portfolio grows. I am small potatoes at this point so not escrowing is helpful for me, specifically.

sirck- I looked into getting out of my escrow arrangement with Chase a few years ago and they did not allow it. Not sure if all banks are like this. I do not recall pressing the matter for some reason, so you asked a good question. I do not know why banks do not let you opt in/ out midway into the mortgage. My guess is that is due to the original agreed-upon mortgage covenant where you said you would escrow. Maybe it is that legally they can't and won't waste time with such a request.

Do you escrow your taxes and insurance?

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