What are the risks and benefits of waiving an escrow account if your lender allows it? (2024)

Key takeaways from this article

• Avoid servicer errors:

  Managing your own property tax and insurance payments prevents mistakes that might occur with a third-party escicer. You'll need to stay organized, but you avoid the headache of rectifying someone else's error.

• Direct payment discounts:

  Paying your property taxes directly could qualify you for discounts, easing financial strain during closing. Just ensure that you keep track of due dates to avoid any late fees or penalties.

This summary is powered by AI and these experts

• Toya Horn Howard
• Gail Malloy Paralegal, Title Insurance Agent…

• John M Pogue Positive and Caring Financial Burden Negotiator

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  To ensure accurate handling of taxes, mortgage service companies often utilize tax management systems or tax services. However, the cost are usually passed on to the borrower instead of being absorbed by the company, potentially resulting in higher monthly mortgage payments. It's important for borrowers to be aware of these expenses and how they affect their overall financial obligations when dealing with a mortgage service company.

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• Toya Horn Howard

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  See Also

  What’s the best way to deal with an escrow shortage? | DupacoWhat is an Escrow Waiver and Do You Need One? | ChaseWhat is an escrow account and how does it work?
  Ever since my first investment purchase I've paid my own. At first I had an escrow account. But an error caused by the mortgage company recording the wrong PIN number in their records caused them to take taxes out of my escrow for a mansion vs my 1BR condo. This overdrew my escrow account immediately and caused huge problems. It took almost a year to straighten it out. I had to research and locate the president of the servicing company. Once their inhouse counsel got involved my problem was resolved quickly. But dealing with their regular servicing team was a nightmare. Since then, I have always negotiated to pay my own taxes and insurance. Too many opportunities for servicers to screw up. Pay your own taxes & insurance.

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• Gail Malloy Paralegal, Title Insurance Agent, Entrepreneur, Westmoreland Paralegal Services

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  Nice benefit to control your own money and pay taxes directly at discount. This definitely results in less upfront costs of closing.

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• John M Pogue Positive and Caring Financial Burden Negotiator

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  By diligently building an emergency fund equivalent to three months' worth of your bills, you can secure a safety net for unforeseen situations. Taking control of your escrow management enables you to direct those funds into your emergency fund, thereby boosting your liquid capital and enhancing your financial preparedness during emergencies. Strive to financial discipline to ensure you have sufficient resources for both your regular expenses and unforeseen circ*mstances.

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• John M Pogue Positive and Caring Financial Burden Negotiator

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  Based on my experience, if you are late on your taxes, most mortgage servicing companies will require mandatory escrow for the taxes. This measure is taken to mitigate the risk of tax auction and potential loss of the investment for both homeowner and investor. It's crucial to sat on top of your tax payments.

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• John M Pogue Positive and Caring Financial Burden Negotiator

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  Mortgage service companies may hold an extra 2 to 3 months' worth of escrow payments, resulting in higher monthly bills. This measure provides a buffer to account for possible increase in taxes and insurance cost. However, it's important to note that in most states the funds are kept in a non-interest-bearing account, which means they won't accrue any additional earnings for you. Managing your finances prudently and maintaining a separate emergency fund can farther enhance your financial preparedness for unexpected expenses.

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• John M Pogue Positive and Caring Financial Burden Negotiator

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  Selecting the right mortgage lender can grant you unexpected freedoms that may prove crucial later on. For instance, the option to manage escrow yourself allows for your financial control, while the ability to defer a payment to the end of the loan term offers flexibility during emergency financial challenges. It’s essential to be mindful of these features while choosing a mortgage lender to endure they align with your specific financial objectives and provide you with the necessary financial security and convenience.

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• John M Pogue Positive and Caring Financial Burden Negotiator

  (edited)

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  Mortgage service companies primarily function to service the mortgages on behalf of the investor. While borrowers may consider themselves customer of the mortgage service company, the ultimate customer is the investor who owns the mortgage. As such the mortgage service company's main objective is to manage the loan on behalf of the investor and ensure the best interest of the investor are protected. Borrowers should be aware of this dynamic and understand that the decisions made by the mortgage service company are often driven by the investor's interest.

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