Escrowing your property tax and insurance is a very convenient service that your mortgage company offers for the small one-time setup fee. It is particularly good for people with poor money management skills who can't trust themselves to save up that money for when it is needed.
But if you are able to trust yourself the opportunity cost of escrowing these payments greatly outweigh the convenience.
My primary residence property tax is $5221/year and my homeowners insurance is $931/year. Both of these paid are in an annual lump sum meaning for most of a year that money would be sitting in escrow not earning any interest. How much interest depends on you and your bank, my credit union is paying 4% right now, but by having my mortgage servicer send a couple of checks a year I am losing out on ~$140 in interest. A stamp cost $0.55 or you can most likely pay the bills online for free!
$140/year might seem like an insignificant amount of money but I was essentially paying somebody $70 to write a check! And if your bank doesn't pay decent interest then you need a new bank ASAP.
May 18, 2019 at 09:25AM
