In many mortgage situations, the use of something called an escrow account will become necessary. Also called an impound account, this is a separate account where the lender sets aside certain funds to be used each month for taxes and mortgage insurance – it ensures these fees are paid on time, and avoids tax liens or uninsured losses that the borrower is unable to pay back.
At Primary Residential Mortgage, we’re here to advise you on the benefits and downgrades of escrow accounts for your situation. Here are a few important questions you should be asking before deciding whether to use escrow.
Do You Save Well?
For people who have issues with budgeting, an escrow account is a good idea. It’s a great way of automatically ensuring that these vital payments are made each month, and keeps you away from risks of forgetfulness or hasty spending – you literally won’t be capable of spending that money elsewhere, even if you want to.
However, if you’re self-employed or work off commissions (and therefore have more variable monthly income), you’re often better off avoiding escrow. Bigger earning months allow you to set more aside, and use the extra during the leaner months. People in these professions generally have to be strong about budgeting in the first place.
Where Else to Put It?
If you’re a good money-saver, there’s no need for escrow – you’re making monthly payments for something you only need to pay a couple times a year. If you want to ensure this money stays untouched, you can simply use a money market account.
Will the Bank Care?
There’s one big additional benefit of using an escrow account: In some cases, a lender will give you better mortgage rates if you do so. In many situations, this will lead to substantial savings over the life of the loan that make escrow completely worth it. Try to find out in advance whether this may be a benefit you see.
With an escrow account, it’s the lender’s responsibility to pay tax and insurance bills. It’s vey rare that this doesn’t happen, but if your lender has any reputation for missing payments, you may want to look in a different direction.
Want to learn more about escrow accounts, or any of our other mortgage company services? The brokers at Primary Residential Mortgage are waiting to assist you.
*The views and opinions expressed are my own and do not necessarily represent the official policy or position of Primary Residential Mortgage, Inc.