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.