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Removing escrow from mortgage


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Thinking about removing my escrow account from my mortgage , I have met all the requirements to do so.

 

Any downside to doing this ? I have the discipline to sock away the required money and would rather be making interest on the money rather than the mortgage company.

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22 minutes ago, Steel Shank said:

State law (Texas) allows the mortgage company to keep an extra two months worth of payments in the escrow account as "insurance", meaning they keep extra money of yours. I got rid of mine as soon as we meet the qualifications to do so.

Yep.  This sucks nuts BIG TIME especially if you happen to refinance and you've had absolutely no history of late payments, etc.    And if your taxes and/or homeowners insurance happen to go up enough to hit a certain trigger, they will bump your payment up even if you have enough reserves in the escrow to cover the bills with your annual review.   

Get rid of the fricken escrow ASAP!   

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State law (Texas) allows the mortgage company to keep an extra two months worth of payments in the escrow account as "insurance", meaning they keep extra money of yours. I got rid of mine as soon as we meet the qualifications to do so.



Yep this is part of the reason I want to ditch escrow . Not to mention they get to keep the interest
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We dropped it after the first year. The mortgage company tried really hard to talk me out of it which indicates that they make decent money off it somehow. As far as I could tell, the only real risk is if you forget to pay on your own somehow. I don't remember what the actual consequences were, but I don't think they look too fondly on people dropping escrow and then missing a tax or insurance payment.

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Paying your taxes/insurance premiums via credit card can also net you some points, assuming you are disciplined enough to be able to pay off your credit card come collection time.  Other than that the interest angle is really going to net anything for either party, it's more of just the mental aspect of you controlling your money.  If you are doing it right you are basically setting up your own escrow for taxes/insurance. 

I think a mortgage company being against it is because most people aren't financially disciplined, and it would be a really bad idea for them.

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6 hours ago, tokamak said:

We dropped it after the first year. The mortgage company tried really hard to talk me out of it which indicates that they make decent money off it somehow. As far as I could tell, the only real risk is if you forget to pay on your own somehow. I don't remember what the actual consequences were, but I don't think they look too fondly on people dropping escrow and then missing a tax or insurance payment.

If you miss it the mortgage company is going to send you a bunch of notices until you keep missing it and then they are going to pay it and force the escrow back on you....

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16 hours ago, Gene Parmesan said:

Paying your taxes/insurance premiums via credit card can also net you some points, assuming you are disciplined enough to be able to pay off your credit card come collection time.  Other than that the interest angle is really going to net anything for either party, it's more of just the mental aspect of you controlling your money.  If you are doing it right you are basically setting up your own escrow for taxes/insurance. 

I think a mortgage company being against it is because most people aren't financially disciplined, and it would be a really bad idea for them.

Another reason that the mortgage companies are for it is that it is easier for them to be sure the payments they are made if they are making the payments themselves.  Otherwise, they have to have systems in place to make sure that the taxes are paid (they will lose first lien status) and insurance is in place to prevent loss

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6 minutes ago, Quagmire said:

8000 is high for taxes?

8000 @ 2.1% is 168 a year

But the escrow isn't taking out all 8000 at once.  So you don't have 8000 invested for all 12 months.

Not saying you shouldn't get rid of the escrow, just the investment return won't be that high.

Edited by chitwood
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5 minutes ago, Quagmire said:

8000 is high for taxes?

8000 @ 2.1% is 168 a year

Does your escrow keep 8000 in all year? Mine has about 1 month extra payment right now. It isn't until the end that it has built up for the full tax payment. I think it was like 50 bucks at my savings account rate (2%) that I lost in interest per year last i checked. 

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But the escrow isn't taking out all 8000 at once.  So you don't have 8000 invested for all 12 months.

Not saying you shouldn't get rid of the escrow, just the investment return won't be that high.

 

They don’t but I already have the money saved for this year in my own savings. And will transfer monthly payments to fund next year so already ahead of the game. Thought everyone here was top 1%

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8000 is high for taxes?

8000 @ 2.1% is 168 a year


Divide that by $8000 by 2 to get your average daily balance. So you get $84/yr assuming that you use a high yield online account that continues to pay 2.1% and don’t get lazy and just use Chase/BofA/whoever you normally use. In which case you would get about $4/yr in interest.
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How does one get/know when eligible, to get rid of Escrow?

Contact your loan holder

Essentially you have to have 80% LTV, no 30-60 late payments in last 24 months, loan must be 2 years old minimum, etc

If you have a FHA loan you are out of luck, it’s a requirement
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I'm closing on my second home purchase this week, and both times, no escrow was added to begin with. We pay everything directly to the bank (loan), county (taxes) and insurance co (duh) with no from day one. Is that not an option in Texas?

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1 hour ago, Quagmire said:


Contact your loan holder

Essentially you have to have 80% LTV, no 30-60 late payments in last 24 months, loan must be 2 years old minimum, etc

If you have a FHA loan you are out of luck, it’s a requirement

Could you clarify this part for me.  Is that the same as you would need to get the mortgage insurance taken off too?  I'd like to do both honestly.  My escrow amount went up recently and our loan payment went up quite a bit if we didn't pay the "estimated shortage", which we did.  Ugh.

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Could you clarify this part for me.  Is that the same as you would need to get the mortgage insurance taken off too?  I'd like to do both honestly.  My escrow amount went up recently and our loan payment went up quite a bit if we didn't pay the "estimated shortage", which we did.  Ugh.

Correct , once you get more than 80% LTV they remove PMI, mine did it auto magically

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3 hours ago, Rimbo said:

I'm closing on my second home purchase this week, and both times, no escrow was added to begin with. We pay everything directly to the bank (loan), county (taxes) and insurance co (duh) with no from day one. Is that not an option in Texas?

That is certainly an option. 

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Contact your loan holder

Essentially you have to have 80% LTV, no 30-60 late payments in last 24 months, loan must be 2 years old minimum, etc

If you have a FHA loan you are out of luck, it’s a requirement


Are y’all talking about escrow for taxes and insurance, or are you talking about PMI? Because this sounds like you’re talking about PMI.
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About a year after we bought our house, I contacted my bank and asked them how much left to hit 20% equity. Made the payment and asked them to remove the PMI and refund my escrow balance. I've managed it myself ever since because I like to be in control of my own money.

 

It seems like if you waited a certain amount of time you maybe had to get an updated appraisal. Or maybe I just made that part up.

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15 hours ago, Lobwedgephil said:

That is certainly an option. 

OK, whew. Some of this discussion about "Texas state law requires 2 months'" etc is making me scratch my head in confusion. Granted, I'm not buying in Texas, since I'm currently surviving a Californian Exile, but ...

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11 minutes ago, Rimbo said:

OK, whew. Some of this discussion about "Texas state law requires 2 months'" etc is making me scratch my head in confusion. Granted, I'm not buying in Texas, since I'm currently surviving a Californian Exile, but ...

Simple...let's say to keep it easy your tax and insurance came out to 12K a year in 2018. So you would in theory pay 1K a month for your escrow payment to cover those payments in 2019.  BUT the 2 months is a "cushion" because nobody really knows when they are calculating your escrow payment what your taxes and insurance are going to be next year. The law allows the servicer to calculate your escrow payment on the premise that they need those extra two months to cover those increases when the bill comes due next.  Some states allow one month, some states don't allow any cushion (and the servicer has to cough up the money if the bill comes in higher, though they will then collect it back from you)

So if you do happen to live in a state that doesn't allow your servicer to keep a cushion and you generally have appreciating tax/insurance payments it could be worth it in those very specific circumstances to keep escrow and let your servicer come up with the extra money and then pay it back to them the next year interest free....again pretty limited scenarios where that makes sense.

As to Phil's comments on MI.... yes those are generally the same requirements.  Most servicers will apply the same general set of guidelines as a requirement that you meet before they will drop the escrow account the loan was originated with.

Edited by Surly Bevo
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6 minutes ago, Surly Bevo said:

Simple...let's say to keep it easy your tax and insurance came out to 12K a year in 2018. So you would pay 1K a month for your escrow payment to cover those payments in 2019.  BUT the 2 months is a "cushion" because nobody really knows what your taxes and insurance are going to be next year so the law allows the servicer to calculate your escrow payment on the premise that they need those extra two months to cover those increases when the bill comes due next.

As to Phil's comments on MI.... yes those are generally the same requirements.  Most servicers will apply the same general set of guidelines as a requirement that you meet before they will drop the escrow account the loan was originated with.

Okay, I get how it works when you do it. What I was confused by was that it sounded like you couldn't opt out of Escrow beyond the transfer of ownership. I've certainly never made taxes or insurance payments to anyone other than the County and insurance company, respectively, and neither of my home purchases have required that I pay them into escrow or rolled up into the loan or anything like that. Escrow ends when you get the keys to the house, in other words.

Edited by Rimbo
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2 minutes ago, Rimbo said:

Oh, I know how it works when you do it. What I was confused by was that it sounded like you couldn't opt out of this. I've certainly never made taxes or insurance payments to anyone other than the County and insurance company, respectively, and neither of my home purchases have required that I pay them into escrow or rolled up into the loan or anything like that.

Nah that's just what the law allows the servicer to do when you have an escrow account...if you originate the loan without escrow none of that stuff applies.  But if you do originate the loan with escrow and are in Texas then yea you are stuck playing by those rules until you get rid of it.

Edited by Surly Bevo
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5 minutes ago, Surly Bevo said:

Nah that's just what the law allows the servicer to do when you have an escrow account...if you originate the loan without escrow none of that stuff applies.  But if you do originate the loan with escrow and are in Texas then yea you are stuck playing by those rules until you get rid of it.

All clear. Thanks!

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Edited by Rimbo
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