I am in the process of refinancing my home and was considering setting up an escrow account so that taxes and insurance are paid automatically with my mortgage. I find this very convenient. Can anybody tell me if there are any major drawbacks to this approach? E.g., if the lender forgets to pay the taxes I get into trouble. I am concerned that there might be a pitfall that I am not seeing with this approach. Any advice would be greatly appreciated.
Thanks
Escrowing your, taxes, insurance, HOA fees is a very common practice. When you escrow, your lender is responsible for making all designated payments. Although rare, a lender could miss a scheduled payment but is responsible for insuring that it is paid.
While some would rather keep their monies in their own pocket and collect interest, depending on the tax amount, the net gain is minimal.
What sometimes happens is the “out of sight, out of mind” theory, followed by the “didn’t I just pay that”. Yes, you did…last year. Unless you have iron discipline, it can be challenging to try and save the money each year. Even if you are successful for a while, things come up. It’s there to dip into for car tires, home maintenance, etc all with the good intention of replacing it as soon as you can because taxes are not due for a while yet.
For most, escrowing is piece of mind. Knowing that they do not have to insure that they have laid aside enough monies to pay when they are due.
From my own experiences as both a homeowner/investor who has done both and as a lender is, “When in doubt, go the escrow route.”
I use escrow for my rental properties, but not my residence. I just think of it as a way of monthly paying the expenses on the property, it cost me a little in lost interest, but not enough to offset knowing its there for the rentals