TXTransplant said:

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Jimbro Fisher said:

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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.

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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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Escrow accounts are regulated. They're only allowed to keep a cushion of 1/6th the total disbursement as a projected minimum account balance.

If the land is going from undeveloped to developed and they don't have an actual tax Bill to go on they can estimate incorrectly. They'll also use the unexempt amount when initially setting up the escrow on a purchase until a tax Bill reflecting the exemption is paid.


It's not some mortgage companies, it's pretty much all of them that use a cushion.

That's pretty much what happened. It was new construction that was a dirt lot on Jan 1. I closed in May.

I had to bring almost $4k more to closing to "fully fund" escrow.

My property taxes that year were only about $800 (they were less than $4k the next year).

By the end of that first year, I had around $6k in escrow, because of what I brought to closing plus all of the mortgage/escrow payments I made after I closed. IIRC, I got a check back for around $4k at the end of the year.

I didn't realize it was a requirement. This was house #2; #1 didn't have escrow (it wasn't even an option). It wouldn't have been as big of a deal if the lender hadn't waited until a couple of days before closing to tell me about it.

hph6203 said:

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TXTransplant said:

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Jimbro Fisher said:

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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.

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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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Escrow accounts are regulated. They're only allowed to keep a cushion of 1/6th the total disbursement as a projected minimum account balance.

If the land is going from undeveloped to developed and they don't have an actual tax Bill to go on they can estimate incorrectly. They'll also use the unexempt amount when initially setting up the escrow on a purchase until a tax Bill reflecting the exemption is paid.


It's not some mortgage companies, it's pretty much all of them that use a cushion.

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I think the people who resist escrowing are typically older (like me) people who have past stories of widespread lender over-escrowing abuses, and who also remember high-yield savings accounts with 5%+ rates. The regulations were tightened up probably a decade ago, to where it is very hard to over-escrow - the burden of proof switched from the consumer to the lender, in a way of thinking. Also, with interest rates well below 1%, the financial incentive isn't as great to do it yourself.

The main advantage of escrowing is that there is usually an interest rate incentive (up to 0.25% or so) from the lender up front. That's real money! In that case, you can still decide to discontinue escrow sometime down the road for your loan, so you should definitely take the discount if you can get it. I don't believe they can legally require you to escrow for the whole life of the loan.

The main advantage for self-escrowing is timing your tax payments between tax years, if you are in the position to be an itemizer one year, and not the following year.

hph - correct me if any of this is currently inaccurate...

If you want a second opinion, look at savings account bonuses. Citibank and places like Simple and HSBC offer bonuses of 500-750 for holding accounts worth 10k or more at a time. I escrow into those and cycle through the offers over time, making a solid 5-8% minimum on the money.

My understanding is that, outside of California, the servicer is under no obligation to remove an established escrow account but there are still many that are willing to remove them given certain requirements. That doesn't go for FHA loans to my recollection.

A single escrow issue isn't likely to recur over and over, because the requirements don't vary from servicer to servicer. Taxes paid, insurance paid, shortage or surplus. It's all just a math problem, not perspective.

Escrow accounts also allow you an interest free loan on escrowed items when they increase. Your insurance and taxes go up causing a shortage on the account? The lender will calculate the shortage and spread it over 12 months instead of having to pay it all at once.

Realistically the biggest difference between escrowing and not escrowing is the cushion (2 months) and the up front .25% of the loan amount fee to not escrow. Over time you could probably make up the fee in interest earnings, but it would take quite awhile if not putting it in riskier investments.

You certainly have that right but it comes with a cost.

jja79 said:

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You certainly have that right but it comes with a cost.

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Cost of not having escrow? I'm coming out ahead with the interest I'm getting. Ease of shopping homeowner's is just another a bonus of not having escrow.

This reminds me of the debate of whether or not to overpay taxes every year and get a refund (or not)...

I'll responsibility hang on to my money and make it work for me until needs to go out the door.

Cancelled my escrow when they paid my neighbors property tax instead of mine. Huge headache getting the county and the servicer to figure it out.

High yield savings. Have to write 2 checks a year. One to county, one to insurance. Easy.

I was not charged more when we went from an escrowed final statement to non escrowed. There were not additional fees, so I'm not sure if the lender ate those cost however comparing the final settlement statements there was not a difference.

Someone paid it. It often is baked into the rate. Freddie and Fannie charge on any loan without an escrow account.

I haven't had an escrow account since we bought our very first house. I don't think it added anything to my rates as we would work on the rate side of things and get that set and then I would say I don't want an escrow account and in every instance from houses, investment properties, business, no escrow account and never any indication i was paying more for it. Certainly not a quarter point.