In response to my earlier post on Should You Manage Your Own Mortgage Escrow?, reader James e-mailed me a trick he found to save some money even if you are required to have an escrow account:
Even if you’ve got an loan that requires an escrow account for the life of the loan, you can still save some money by beating your lender to the punch on payments. Most homeowners insurance companies provide a discount (about $50 in my case) if you pay your homeowners insurance premium yourself on-time or in advance. They get their money sooner that way. Payments made from escrow don’t usually post until 30 to 60 days past the actual due date.
You can make this payment using a credit card, and then provide proof of payment to your lender, who will then reimburse you from escrow instead of paying the insurance company. If you time it right, you can float the payment on a credit card as a regular purchase, and not incur any interest by paying it off as soon as you receive the payment from your escrow account. Presumably, you could do the same with property taxes.
I called my homeowner’s insurance company (State Farm), and they said they don’t offer such a discount. But maybe yours does?
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I think it’s too much hassle for a little savings. And one mistake can wipe out you entire year’s savings.
Interesting idea, we looked at that option when getting our mortgage. You could also get the benefit of cash back from your credit card or airline miles, points, rewards etc. by making these payments yourself. In the end we just went with the escrow paying for taxes and homeowner’s insurance because of convenience. Thanks for your consistent quality posts.
No way! This is not going to work on average. I agree with Free Classified Blog. This is way too complicated and risky (read: Don’t Do It).
How is this risky? Our home owners insurance lets us pay with a credit card, which means that we can get cash back on the payments. As long as we can pay off our balance each month, where is the risk?
I got out of my escrow, and pay my insurance and property taxes myself. I have to make 2 payments a year. It’s pretty simple and way easier to follow than what seemed to be an ever changing escrow account
I pay my own property tax and home owner’s insurance. This is reported to the credit union that has it.
Not a big deal unless you are totally disorganized.
So I paid my home insurance in full for the entire year but the closing documents still show it on the escrow (installments for 4 months) as well as on my monthly payment. I don’t understand why it should be in reserves in escrow and moreover, as part of my monthly payment when it is already paid. not sure if i’m missing something..
appreciate any feedback.
kes333: I think the reason why you have the installments in spite of paying for a year is that the lender puts it in the escrow for the next year. You are paying on a monthly basis and the lender is paying on a yearly basis. They get to keep the money for a long period of time; they earn an interest, and you don’t.