wife was indicating the other day that a few of her colleagues pay their property taxes lump sum at the end of the year, as opposed to rolling into escrow, because it is cheaper. Is this accurate or FOS? If accurate, how much cheaper? Hays county.

So theoretically you can put the monthly 1/12th of your taxes into a producing account such as money market or savings account. So it can produce some revenue. It has to be safe and liquid so your return will be 1-3% depending how much you look. Not a lot of money but hey it's money. The lender pays zero interest.

You need to show 20% plus equity to the lender to get out of the escrow. You also need to be diligent and stay on top of it.

If a purchase or refinance the lender will have it to charge a waiver fee of .25% of the loan amount so there is a real cost there. It comes down to your preference

Property taxes are the same regardless of whether you pay them or your mortgage company pays them. Some mortgage companies won't let you waive escrow if you don't put 20% down, or they might charge a slightly higher interest rate if you don't escrow.

However, the mortgage company often overestimates what your escrow payment should be in order to "make sure" there is enough money in the account to pay the taxes. This is especially common on new builds that have no property tax history.

So, you could end up overpaying your escrow. You are entitled to request that overage be returned to you, but the process can take a couple of months.

This is why I don't escrow anymore and pay mine in a lump sum at the end of the year.

The mortgage company is also making money (interest) off of the money you (and all of their other customers) escrow.

Some people escrow so they don't have to worry about "saving" enough money for their property taxes. Others don't like writing a 5-6 figure check right at the end of the year/holiday time.

But paying them yourself doesn't get you any sort of "discount". It's just what's most convenient for you. Would you rather pay a little bit each month and have your mortgage company write the check(s) or write the check(s) yourself and pay one lump sum at the end of the year?

If you trust to handle your own money and put it in right account then you should make more than the fee the bank will impose over the life of the loan.

There were some advantages also before the new tax laws depending on how you paid.

Nowthat you mention it, it was the 20%, or lack therof, that got us into using escrow. The opportunity cost of investing the funds through the year was the only thing that came to mind. At the end of the day, the county couldn't care less how they get their money, since its all paid lump sum each year anyway. Thanks for the input.

Escrow. One less thing to keep up with.

If you did not have 20% down on purchase or refi you now must show that in reduced loan amount to the purchase price or get a new appraisal to show the equity. Appraisal is 350-400 depending on the lender.

Architelico said:

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wife was indicating the other day that a few of her colleagues pay their property taxes lump sum at the end of the year, as opposed to rolling into escrow, because it is cheaper. Is this accurate or FOS? If accurate, how much cheaper? Hays county.

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Cheaper is an interesting term here. Escrow is a 'free service' from your mortgage company. If you've got 10k in taxes that are held in escrow that is 10K you can't put in a money market account to grow 1.5-2.0%. So you lose that opportunity cost.

Also, escrows can over withhold to make sure you have money to pay for the taxes+insurance they pay out. There's a set rate they can over withhold (I think its 23%) before they have to release some funds to you. I've had a friend have to fight to get 6k worth of overwitholding back into their hands. So that is another way its 'cheaper' to do it yourself.

And finally, if you use escrow you lose the ability to decide in which tax year you pay your property taxes (December or January). This has been diminished with recent tax law changes.

For responsible people, the autonomy and reduction in hassle is more important than the cheaper arguement, but it all comes back to, 'its my money, quit telling me what I should do it with it'

Per federal law the lender can ask and receive two months extra of the escrow amount. They do an account review annually, usually around March, and will notify your of an overage or shortage.

My lender allowed me to not escrow and there was no fee. Less than 20% down. So I do it myself. Put it in a savings account and I have a much better grasp of what taxes will be than their very conservative estimates.

If you can manage your own money well, definitely avoid the escrow. It's been explained perfectly already in previous posts.

If your taxes are $500/month and you were getting 1.5% return on a safe place to stash that money the interest is $0.63/month on each incremental deposit to the account. Not advocating either side but the opportunity cost isn't much.

jja79 said:

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If your taxes are $500/month and you were getting 1.5% return on a safe place to stash that money the interest is $0.63/month on each incremental deposit to the account. Not advocating either side but the opportunity cost isn't much.

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This is true, but I'd rather earn $0.63/month than over-pay my mortgage company so that they can earn interest on my money.

I'm refing tomorrow and setting up a new escrow. It is individual decision. I've non escrow for ten tears so your choice. Neither makes my needle move much,

TXTransplant said:

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jja79 said:

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If your taxes are $500/month and you were getting 1.5% return on a safe place to stash that money the interest is $0.63/month on each incremental deposit to the account. Not advocating either side but the opportunity cost isn't much.

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This is true, but I'd rather earn $0.63/month than over-pay my mortgage company so that they can earn interest on my money.

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That's fine. His point wasnt that YOU shouldn't do it, but that just for all the big swinging dicks here making $100/hr it may not be worth the hour annually spent managing this in order to make nine dollars.

That's an individual choice. If you have a conforming fixed rate mortgage the escrow waiver fee is probably baked into the rate. Let's say that's 0.125% rate increase and you have a $400K mortgage. Your payment is $28/month more than if you escrow. Everyone should do the math.

It's more than $9 since in the example it's $0.63/month on each deposit (12th month would be 12 x $0.63) but I don't think it's cut and dried.

Typically, lenders charge 0.25% additional to your loan rate if you don't escrow even with a 20% down payment. That's an annual cost that's much more than the financial opportunity lost due to escrow.

Escrow accounts are set up based upon the previous year's actual taxes paid (unexempt amounts in the case of a purchase) or based upon the tax rates and appraised/purchase value (in the case of a new build). The lender does not fight you to hold onto your money, they can't. They are legally obligated to re-analyze your escrow account for a surplus or shortage once per year, and that's usually done after that year's tax payments are due (in Texas lender's pay taxes in December and assess between March and April).

There is no "fighting" to get your money back. Your friends that say this are generally not understanding the process, arguing over appraised values that reduce projected taxes, but not yet assessed taxes (true estimates are only used on new builds, actual assessed taxes are used otherwise), or asking for an off cycle analysis to be run before its scheduled (the lender is only obligated to run an analysis once per year and if you request an off cycle it means you will definitely have two). Errors can happen, but they're not malicious and they're not that common.

When a lender runs the analysis all they are doing is taking the previous year's disbursements, projecting that they will stay the same amount and paid for the same due dates. Then taking your starting balance, adding 1/12th of the total disbursements to that balance, finding the projected low point for the year, comparing it to the 2 month (1/6th of the total disbursements) cushion and determine if you're projected to have more than that (a surplus, returned to you within 30 days, by law) or a shortage (paid back over 12 equal payments over 12 months, or up front to avoid an additional increase in your payment, this is not necessarily required, but it's standard).

Notice of escrow changes must be done 30 days prior to the change.

When you have an escrow account the lender is legally obligated to pay your taxes at the most discounted rate (before penalties, or interest is charged depending on the terminology your taxing authority uses).


Using my escrow account as an example:
Taxes: 7800 (December due date)
Insurance:1700 (May due date)
Starting Balance: 3500
Projected escrow payment: 790
Projected balance:
April: 4290 (3500+790)
May: 3380 (4290+790-1700 insurance payment)
June: 4170 (3380+790)
July: 4960 (4170+790)
August: 5750 (4960+790)
September: 6540 (5750+790)
October: 7330 (6540+790)
November: 8120 (7330+790)
December: 1110 (8120+790-7800 tax payment) <- Low Balance
January: 1900 (1110+790)
February: 2690 (1900+790)
March: 3480 (2690+790)

My low balance needs to be at least 790x2=1580. That means my shortage will be my required minimum balance of 1580 minus the projected low balance of 1110, which is 470. I'll have the option to pay that in March to keep my escrow payment at 790, or I can opt to pay it over 12 months and have an escrow payment of ~829.


It is all highly regulated, lenders cannot "screw" you with your escrow account. The only thing you miss out on by having one is the minor interest gains you could get by keeping your balance in a low risk interest yielding account/investment.

I didn't want to quote your whole post because it's long, but when I bought house #2, it was a new build. On Jan 1 of that year, it was a dirt lot. Taxes should not have been more than about $800, and they were going to be split about 50/50 between the builder and me because I closed in May.

A few days before closing, I got a call from the bank saying they needed needed me to bring an extra ~$5k on top of my 20% down payment. They said I had to FULLY fund one year of the escrow account, even though they knew that was no where close to what they were going to owe. And they significantly overestimated what a full year of taxes would be.

On top of that, they overestimated what the taxes would be on the finished house when they determined my monthly payment.

The bank did tell me I was entitled to ask for an escrow refund at the end of the year - which I did. I got a check back that was over $3k. But by the time I could request the check, my mortgage had been sold to Bank of America. It took multiple phone calls and a couple of months before I got my money. It's not a hard process, but it can take time and multiple phone calls. The banks may not be intentionally trying to hose anyone, but they aren't quick to refund your money.

My experience was probably an anomaly, but that's why I didn't escrow house #3.

My very first mortgage, escrow wasn't even an option. But my property taxes were only $500/year.

jja79 said:

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That's an individual choice. If you have a conforming fixed rate mortgage the escrow waiver fee is probably baked into the rate. Let's say that's 0.125% rate increase and you have a $400K mortgage. Your payment is $28/month more than if you escrow. Everyone should do the math.

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Yeah, I didn't figure the post was specific for me. I was just sharing a different perspective. I specifically didn't list earning "interest" on what you don't escrow as a benefit in my very first post because it's literally pennies.

Is it a given, though, that you will always pay a higher rate? When I refied, I could have sworn I asked about that, and the rate was the same. But, my rate is 2.625%, so I may not have been worried about a rate increase.

No all lenders charge a fee to waive escrow, and you also do NOT have to have an escrow account if you are putting down less then 20% down. Most lenders do require it but Fannie/Freddie do not require it. We waive escrow above 80% for no rate adjustment/fee all the time.

This is my current experience. My lender did not charge extra for not escrowing.

For me, not escrowing was, somewhat ironically, about predictability. When the bank does their annual escrow review, if they determine you ate into the buffer, they will double dip on the increase to your monthly escrow amount. First they will increase to build back up the buffer, then on top of that they will increase to match your increased taxes and/or insurance.

So you get your tax our insurance bill for the year and you think "no big deal, my insurance premium only went up $100" then a few months later your escrow goes up $72.35 per month and you are scratching your head trying to figure out how that math works.

Then in other years they overestimate, and in their review decide to lower your escrow a few bucks, but they don't double dip back to you, you have to go request reimbursement on the overage, as mentioned.

OR, once or twice a year you can get your insurance premium and tax estimate, divide that by 12 or 52 (or however you get paid) go into your banks website, and adjust your weekly/monthly repeating transfer to savings for the correct amount, and collect some interest on it, however small.

I found the time it takes for me to annually adjust my automated saving was less than the time and stress it was for me to try to figure out if the escrow math was fair.

I've been doing it myself for 10+ years. Much prefer having it in my own control. Autodraft to savings, adjust as needed when receive annual valuation/estimate in May, pay out in January. Easy peasy and no hassles with a bank overbuilding cushion, etc

So for you lenders, if a buyer asks to waive the escrow, and you tell them it will cost them with a higher rate, and they tell you to go pound sand and they will find someone who wants their business, do you just let them walk?

I can only speak for myself but I do not handle it that way. I give the client options depending on what they want. I usually build in the costs into my offer but show them what the price could look like with a different decision from them.

TXTransplant said:

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Property taxes are the same regardless of whether you pay them or your mortgage company pays them. Some mortgage companies won't let you waive escrow if you don't put 20% down, or they might charge a slightly higher interest rate if you don't escrow.

However, the mortgage company often overestimates what your escrow payment should be in order to "make sure" there is enough money in the account to pay the taxes. This is especially common on new builds that have no property tax history.

So, you could end up overpaying your escrow. You are entitled to request that overage be returned to you, but the process can take a couple of months.

This is why I don't escrow anymore and pay mine in a lump sum at the end of the year.

The mortgage company is also making money (interest) off of the money you (and all of their other customers) escrow.

Some people escrow so they don't have to worry about "saving" enough money for their property taxes. Others don't like writing a 5-6 figure check right at the end of the year/holiday time.

But paying them yourself doesn't get you any sort of "discount". It's just what's most convenient for you. Would you rather pay a little bit each month and have your mortgage company write the check(s) or write the check(s) yourself and pay one lump sum at the end of the year?

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6 figure check

True, but most of the ones that don't have higher rates to begin with, in my experience.

One of the problems in the forum is anecdotal posts about different loan programs and applying one size fits all. Yes some programs do not want to deal with an escrow. And yes some will allow you to not escrow with less then 20% down.

But the vast majority of loans are in these buckets:

Fannie/Freddie aka conventional. They have a fee associated of .25 of 1% of the loan. The lender can absorb the fee or charge at closing.

FHA required escrow regardless

VA requires escrow regardless

Now there are multiple other loans that each has specific rules on escrow. Jumbos don't want them. USDA do. Non QM usually don't. The list goes on.

Don't think every county does it... but when I lived in Bee County, they had a 3% discount for paying taxes in October, 2% November, 1% December, then due in full January. Had to make sure my escrow folks knew that and the balance was paid early. They did, and man did that screw up my required minimum balances that year!!! Fun little check to cut when your escrow balance went negative!

Also, some people will double taxes some years to itemize and take the standard deduction others. So you pay one year January then pay early in December and itemize 2 years taxes. Next tax year you don't pay anything holding if till January again and take the standard deduction.

Why trust a bank to do it? It costs more in closing costs, they take more for a cushion and inflation for year to year, and it is a pain to get money out of escrow when sell house. On my first house, I had $3000 left in escrow in January after taxes were paid and they would not give me the money, so that was the end of it for me.

I'm not going break down this post tonight but man, not correct. Who boy.

Premium said:

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TXTransplant said:

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Property taxes are the same regardless of whether you pay them or your mortgage company pays them. Some mortgage companies won't let you waive escrow if you don't put 20% down, or they might charge a slightly higher interest rate if you don't escrow.

However, the mortgage company often overestimates what your escrow payment should be in order to "make sure" there is enough money in the account to pay the taxes. This is especially common on new builds that have no property tax history.

So, you could end up overpaying your escrow. You are entitled to request that overage be returned to you, but the process can take a couple of months.

This is why I don't escrow anymore and pay mine in a lump sum at the end of the year.

The mortgage company is also making money (interest) off of the money you (and all of their other customers) escrow.

Some people escrow so they don't have to worry about "saving" enough money for their property taxes. Others don't like writing a 5-6 figure check right at the end of the year/holiday time.

But paying them yourself doesn't get you any sort of "discount". It's just what's most convenient for you. Would you rather pay a little bit each month and have your mortgage company write the check(s) or write the check(s) yourself and pay one lump sum at the end of the year?

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6 figure check

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You don't pay $100,000+ in property taxes? Your username is literally Premium.

SteveBott said:

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VA requires escrow regardless

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I have a VA loan. No escrow. No fee. Less than 20%.