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What fund would you put property taxes and home insurance in monthly?

4,582 Views | 45 Replies | Last: 3 yr ago by Hanrahan
ForeverAg
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AG
We are closing on our new home soon, and will not be escrowing our taxes and home insurance. My plan is to pay in each month as if we were escrowed, however put the money I would be paying taxes and insurance into a fund of some sorts.

My initial thoughts are a Vanguard index fund, VTI or VXUS.

What do yall do?
TwoMarksHand
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AG
High yield savings. No way I would risk that money in stocks.
Ag92NGranbury
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Agree... a no risk money market
ac04
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just escrow it. the highest of "high yield" savings accounts are like 1% right now. unless you are paying some insane amount of taxes/insurance that's not enough money to bother messing with it imo, so much easier to escrow.
BenTheGoodAg
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AG
Idk, I like the flexibility of managing those costs myself. And rates may be low now, but who knows what they do in ten years. I've always opted out of an escrow in order to deduction bunch my property taxes and itemize every other year.
ac04
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if rates are different in 10 years, re-evaluate. i'm very skeptical of the ROI on the time spent screwing around with it.
ForeverAg
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AG
Looking into high yield savings, rates are @ .7 APY

If I put 700 a month in there each month

At the end of 12 months I will have $9104.90.
I would only put in $8400

Is that correct? Seems high and im using the calculator from axosbank.com for their APY calculator

Thats not a bad look if that math is correct.
ac04
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there's no way that's correct
Ag92NGranbury
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AG
ForeverAg said:

Looking into high yield savings, rates are @ .7 APY

If I put 700 a month in there each month

At the end of 12 months I will have $9104.90.
I would only put in $8400

Is that correct? Seems high and im using the calculator from axosbank.com for their APY calculator

Thats not a bad look if that math is correct.
um.. check your math...

that's over 8% APY... u might have missed a decimal point
BenTheGoodAg
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AG
Nvm. Decimal place as mentioned. You're probably looking at $30 interest over a year if adding $700 a month at .7%
ForeverAg
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BenTheGoodAg said:

Nvm. Decimal place as mentioned. You're probably looking at $30 interest over a year if adding $700 a month at .7%

Ya I keep plugging in the online calculator and im way off but that makes way more sense.
Stive
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AG
At .7% you make about $36 for the year on $700 a month.
SMM48
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AG
just escrow it.
Red Rover
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AG
It also depends on how tight your budget is. If you feel comfortable with the risk/reward of keeping that in the market and have extra so that you could still make your tax payments should SPX see 2700 again then that's not necessarily a bad route. It's definitely more risky so don't do it if you wouldn't have enough reserves to pay your taxes should the market drop. Risk tolerance is good but you never want to set yourself up where that 5% chance really burns you - because playing it long enough the 5% chance will happen.
Cloud
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It is not a huge chore to manage this yourself. Any monetary benefit at all is reason enough for me not give the mortgage servicer my money in advance interest free.
JSKolache
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VTI or some low volatility div payer
aggiebq03+
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For anyone who has an ESPP (employee stock purchase plan) option at work, it's a good way to "self escrow" if you always sell the stock as soon as it vests. Our company plan gives 15% discount of the end of period price, so even after taxes that is ~10% return. Then into a money market until the tax bill comes.

Avoiding an escrow company avoids the mistakes they can make that take many hours to correct if they miscalculate and want to over or under withhold. As long as you have the discipline to set the money aside and not touch it, I think it's worth it to avoid escrow companies. Not for the return on the savings but just to skip the possible headaches.
Texker
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AG
TwoMarksHand said:

High yield savings. No way I would risk that money in stocks.
Yeah, we just set-up a separate account.
ChoppinDs40
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AG
From what I've see , escrowing lowers your interest rate with the lender. Less risk.
Grown Pear
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TwoMarksHand said:

High yield savings. No way I would risk that money in stocks.
Do not do not do not do not do not do not do not chase yield and invest your property tax and insurance funds.

Don't overthink this. Do what 2marx says and keep it simple - put it in a high yield savings accounts and write the check when you need to.
Retired Principal
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We do not pay escrow. Just transfer from checking to savings every month. We thought about putting in a low risk mutual fund but not enough to mess with and short time horizon.
jja79
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ChoppinDs40 said:

From what I've see , escrowing lowers your interest rate with the lender. Less risk.


The agencies have a 0.25% cost for waiving an escrow account so that's either paid as a closing cost or baked into the rate.
coop214
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AG
If you are a tmobile or sprint customer, you can open a Tmobile money account which earns 4.0% on $4,000.
E
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Escrow it. As a real estate agent I've only had 1 client recently where it made sense for a client to put it all in a high yield savings. After a year he would save $300-400/year by doing so and he would put the money up front in it, not monthly. Unless your saving this much, escrow it and don't worry about saving the minor amount.
RangerRick9211
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Cloud said:

It is not a huge chore to manage this yourself. Any monetary benefit at all is reason enough for me not give the mortgage servicer my money in advance interest free.
This. Add on liquidity and the option to double dip on p-taxes if you itemize.

We keep ours in VWINX. Alternatively, I've thought about borrowing against our taxable account to also collect the interest deduction and not realize any tax impacts like we do when we sell VWINX to pay our taxes.
SociallyConditionedAg
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You may want to ask if the rate is lower with escrow. In fact, when I refinance my home this summer, the rate was cheaper with an 85% loan than with an 80% loan because the bank associated PMI and escrow as lower risk. I'd never seen that before.
AFarmer95
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AG
Bitcoins
mts6175
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K_1987 said:

If you are a tmobile or sprint customer, you can open a Tmobile money account which earns 4.0% on $4,000.
It's only up to $3k of whatever you have in there.
Old RV Ag
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ForeverAg said:

Looking into high yield savings, rates are @ .7 APY

If I put 700 a month in there each month

At the end of 12 months I will have $9104.90.
I would only put in $8400

Is that correct? Seems high and im using the calculator from axosbank.com for their APY calculator

Thats not a bad look if that math is correct.
Would really recommend you just escrow it and let the bank handle this. Not trying to be snarky but if these numbers didn't raise enough concern that you actually posted it, then you're looking for pots of gold at the end of rainbows.
Golf Ag
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AG
I've run into a case where the lender required a certain cushion in escrow to ensure they never have to pay out of pocket beyond what the taxes/insurance cost is. It ended up causing me to siphon more money into escrow than I owed in taxes and insurance.

When I refinanced over the summer I ditched the escrow and keep that money in high yield savings as others mentioned. If you're responsible enough to manage it on your own just go that route.
Old RV Ag
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This is one of the most bizarre threads. People trying to add extra steps, spend a little of your time (which remember is a cost) compared to one of the simplest things to do in escrowing taxes and insurance with your mortgage payment - and the lender does all the paying the bills. All for what? To make $36 a year in a "high-end" savings account. Wow.
Bird Poo
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AG
Pick a few stocks recommended by OA. I'm up 100% this year alone.

Just be sure to give back to one of his charities.
hph6203
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SociallyConditionedAg said:

You may want to ask if the rate is lower with escrow. In fact, when I refinance my home this summer, the rate was cheaper with an 85% loan than with an 80% loan because the bank associated PMI and escrow as lower risk. I'd never seen that before.
Rate is lower, but that's more than offset by the PMI premium and on a regular amortization schedule you're unlikely to make up the difference once the MI falls off. Even if you prepay, you have to carry the MI for at least 2 years before it can be removed and you'd have to prepay down to 75% and pay for an appraisal to get it taken off. With appreciation you may be able to make up the difference, but it'll take awhile.

Escrow is .25 point to drop.

As far as I'm aware all loans are priced like this. It's why FHA rates are lower than conventional despite substantially lower down payments, but they mandate MI for the entirety of the loan and their MI rates are substantial and MI is also not tax deductible.



As far as to escrow or not to escrow, you're probably not going to make up the .25 point fast enough with any low risk product to make it worthwhile.
Aston04
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jja79 said:

ChoppinDs40 said:

From what I've see , escrowing lowers your interest rate with the lender. Less risk.


The agencies have a 0.25% cost for waiving an escrow account so that's either paid as a closing cost or baked into the rate.
to me having an escrow account is an inconvenience. I like to annually shop my home insurance. If I switch, I have to contact the servicer and get them all the details about switching before I can. Screw that- I'd rather throw the money in a high yield savings account myself to be paid at the end of the year.
TXTransplant
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Jimbro Fisher said:

I've run into a case where the lender required a certain cushion in escrow to ensure they never have to pay out of pocket beyond what the taxes/insurance cost is. It ended up causing me to siphon more money into escrow than I owed in taxes and insurance.

When I refinanced over the summer I ditched the escrow and keep that money in high yield savings as others mentioned. If you're responsible enough to manage it on your own just go that route.


This happened to me. I had to bring several extra thousand dollars to closing to more than fully fund my escrow account. I wound up getting the money back later in the year, but it was a PITA.

That was the one and only time I escrowed (I've owned 3 houses).

My property taxes this year are $8500 and insurance runs about $2k, give it take. I'm super responsible about making sure I have the $ to pay them in full, but I could see a situation where someone is not as disciplined. Especially since taxes are due at the end of the year, which is when people are probably more likely to run short on cash.
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