Having an escrow account for your mortgage can be a great way to ensure that your property taxes and home insurance payments are made on time and automatically. It can also provide peace of mind by eliminating the responsibility of making sure those important bills are paid. But there are also some drawbacks to having an escrow account, such as the burden it places on the homeowner. In this article, we'll explore the pros and cons of including escrow in your mortgage.
One of the main benefits of having an escrow account is that it ensures that your property taxes and home insurance payments are made on time and automatically. This can help you avoid late fees or possible taxes on your home. Depending on the type of loan you get, as well as your financial profile, an escrow account may be required or not. It may be tempting to opt out of an escrow account because it could mean a lower monthly mortgage payment, but the escrow can give you peace of mind by eliminating your responsibility to make sure those important bills are paid.
Both your capital and your escrow account are important, so it's a good idea to deposit money into your escrow account every month. If you want to pay off your mortgage faster, you can pay extra money for the principal. The big expense covered by escrow accounts is property taxes, but they can also be used to pay for home insurance and homeowners association fees. Your escrow balance allows the company that administers your loan to take money out of your security balance to pay taxes or insurance.
When it comes to the disadvantages of an escrow account, it's the homeowner who bears most of the burden. If you're buying a home, you'll probably hear that the word “escrow” is used in several different contexts. After you buy a home, your lender will open an escrow account to pay your taxes and insurance. For VA loans, for example, you'll need a 10% down payment and a strong credit profile to stop having an escrow account.Just as using a credit card can encourage excessive spending, using the escrow account made me much less aware of exactly how much I was paying for insurance and taxes.
When your insurance and property tax bills are due, your lender uses your escrow account to pay them for you. If you are not refinancing your home, once you pay it below 80% of the value of the loan, you may be able to request the removal of the escrow account, but some lenders may charge you a fee to do so.Your lender or servicing entity will review your escrow account every year to make sure you're not charging too much or too little. While you can add money to your escrow account at any time, it won't do any good to reduce the actual amount of principal.In conclusion, having an escrow account for your mortgage can be beneficial in many ways. It ensures that important bills such as property taxes and home insurance are paid on time and automatically.
It also eliminates the responsibility of making sure those bills are paid. However, there are some drawbacks to having an escrow account such as the burden it places on the homeowner.