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| *Loan,banking and credit>>>property insurance |
Is it wise to have an impound account included in your mortgage to pay for property tax and hazard insurance? |
Is it wise to have an impound account included in your mortgage to pay for property tax and hazard insurance? Absolutely. WIll you realistically set aside thousands so that you'll have it for tax time? What about $600+ for home owner's insurance? Why NOT break it up into monthly installments? Its the best way to budget the expense. I've never had a company charge a fee for doig this either....so it's well worth it. edited to add: If your mortgage co does ask for excess money, they re-evaluate once a year to be sure they're not holding too much. I got a refund check of like $200 once because of this-- they had more than they needed. It just makes it easier on you, so you don't have to worry about the payment of these items on your own. Just be aware, they will adjust your escrow every year to compensate for increases in your taxes and insurance. It is if: a) You are a forgetful person or 2) You don't want to be bothered by sending out more checks during the year I find it easier to budget if I'm paying PITI (Principle, Interest, Taxes, Insurance) It really depends upon where you live and how well you handle money. The upside is that you are forced to make payments toward your taxes and insurance year-round. This makes your payments higher, but you avoid the shock of having to come up with several thousand dollars at the drop of a hat. The downside is: Its still your responsibility, so if the mortgage company screws up and doesn't pay your taxes or insurance, you're still on the hook. Eventually, you can get it straightened out, but it could take some time. (I don't think this happens much, though.) Another downside is that mortgage companies typically ask for a bit more than they actually need, in order to cover their risk that you miss some payments. Therefore, you may really only need to put away $500 a month to cover taxes and insurance, but they may ask for $550 a month. (And there's no way for you to refuse without doing it yourself.) So, if you can budget your own money successfully, knowing that that $6000 in the bank at the beginning of summer is needed to pay taxes by August 1 (and its NOT for vacation), then doing it yourself is the way to go. Otherwise, get an escrow account, pay a little more and let the mortgage company handle it. Some banks require this sort of an escrow account for their protection. It really is the best way to go, because it's a lot easier paying a little bit each month than it is paying the lump sum when it comes due. If you can avoid it and can discipline yourself to set aside the funds to cover taxes and insurance, then go without the impound account. It's usually not a big deal with insurance, just sign on for their monthly payment plan. Taxes can be tough though, so make sure you're well disciplined! An impound account is just an interest free loan to the mortgage servicing company. Why give them free money?? FYI, a few of my mortgage servicers paid me 2% interest on the money in my escrow / impound account. Outfits like GMAC and HSBC pay no interest but as of 2004, Chase Manhattan paid interest one escrow funds. The mortgage servicer pays the taxes and insurance and recalculates the escrow amount on an annual basis. |
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