Pros and Cons of Mortgage Escrow Accounts – Part I
As we come to the end of another year, you are probably like me. You start reviewing your statements for tax purposes. Ever year I examine my mortgage statement and review my escrow account. Doing this made me think about “Escrow Accounts” the pro’s and con’s of them. I found a great article I wanted to share in two parts. This week we’ll focus on the Pro’s of Escrow and next week we’ll focus on the con’s.
Pros and Cons of Mortgage Escrow Accounts
Mortgage escrow accounts are a fact of life for most people with a mortgage. In most cases, your escrow account runs in the background and you probably don’t think about it unless something goes wrong. You just make your monthly mortgage payment and a portion of it goes to the lender, and the other portion goes to the escrow service, which holds the money you send them in an account which is then used to pay your property taxes and homeowner’s insurance when they are due.
Most people with an escrow account have it because it was required by their lender when they purchased their home. (Most lenders require escrow accounts for first time homebuyers or when you don’t put down much when you make the purchase.) The escrow account helps lenders protect their investment and makes it easier for many homeowners to budget for their property taxes and homeowners insurance because they make the payments on a prorated basis – you can think of it as a forced savings account.
While escrow accounts may be required and offer a simpler way of doing things, there are both advantages and disadvantages to using escrow accounts.
Benefits of mortgage escrow accounts
The main benefit of using an escrow account is not having to come up with a large payment every 6 months or so for your property taxes or annually for your homeowners insurance. When everything works as advertised, you will have contributed an equal portion of these bills in the months leading up to their due date. In this sense, the escrow account works as an accrual account.
The other benefit for the homeowner is not having to worry about sending in these payments when they are due, because the escrow company should take care of them for you – trust me, you don’t want to miss out on your tax payments!
Unfortunately, sometimes things go wrong, which is one of the major disadvantages of escrow accounts.
By, Kara’s Guest Blogger: Ryan Guina
After reading this article, I have to agree- having the “escrow account” is a huge peace of mind for my family. Stay tuned for next week’s continuation on the pro’s and con’s of escrow. If your New Year’s resolution is to purchase a new home, please feel free to contact me to get the process started. Kara Holleran, 239-246-6000.
Posted on December 10, 2012, in Finance and tagged Accrual Account, Buy a Home, Buyer, Escrow, Finance Me, Fort Myers, Genesis Lending Group, Homebuyer, Homeowners Insurance, Kara Holleran, Lender, Loan, Mortgage, New Year's Resolution, Property Guiding, Real Estate Financing, Savings Account, SWFL Real Estate. Bookmark the permalink. Leave a comment.