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I have a tax/impound escrow account on a few of my properties and for me it is very convenient because you don't have to worry about forgetting about getting the taxes out on time twice a year. The small amount of interest I would earn on the money isn't worth the time and energy to hassle with. I think it's a pain to keep track of paying the tax bill. Most of my properties are paid for so I have to make sure and pay the tax assessor myself. One time, about 10 years ago I got busy and forgot to send it out until about a week after they were due and of course I had to pay the late fee penalty. It's my experience that it's much easier to have the mortgage company take care of it and you'll get a copy just for information.......one less thing to deal with.

It's really really really hard to forget when property tax are due. And paying property tax takes 5 mins online If not, just set an alert on your outlook or smartphone as a reminder. In CA at least, there is the due date, and there is date before penalty applies which is 30 days beyond the formal due date so you can even float the money even longer. Then you have the option to do a little more tax planning to decide whether you want to pay the tax in December or next tax year since deduction is on a cash basis. There is no need to escrow these things. That's where a equity line of credit comes in handy to easily move funds around. If you have a Wells Fargo line, open a Wells Fargo checking and money is easy to manage.

I think that ZLXR's comment relates to CA more so than East Coast; in CA there will often be a big step up in property tax on a resale.

I had a situation where the escrowed amount was too much. I contacted the bank and they sent me a check and adjusted future payments. They have a formula based on tax and insurance to compute how much should be added for escrow each month. It was pretty painless.

Zlxr says

One other thing to think about. If you buy a home that has been owned for a long time - your first installment of property tax will be based on the previous owner’s property tax

My experience has been that any taxes owed at the time of sale are taken out of the seller's side; if they owe $500, it's paid at the time of closing.

Sure, it makes sense to save the $ yourself and pay out of your own pocket when your taxes are due. However, every loan I've ever gotten (conventional) required impounds as part of the deal. You might not have a choice.

SF ace says

It’s really really really hard to forget when property tax are due

They send bills, but if you aren't on top of it, it's not hard at all.

If they're escrowed, the mortgage company/bank can only keep the amount of estimated taxes based on your past bill. If your taxes were $1,200 last year, they will impound $100/mo. If your taxes are actually billed at $1000 the next year, you will receive a refund for $200 and they'll impound $83.34 every month for the next year. And so on. IMHO, of course.

I agree, it's far easier to just let the mortgage company deal with it for you. It's just like over paying on your taxes, sure you can save that extra money in the bank and earn interest on it, with with savings account interest rates hovering around 1%, even $1,000 is only $10 over the course of a year. If you "forget" one quarter to pay the taxes and your even one day late, you'll use up all of your savings in late fees and interest. Perhaps if saving interest rates were around 6% for saving accounts again it might be worth the bother, but as things are now, why put up with the hassle.

> Am I crazy?

Yes, certifiable crazy.

I don't do it. But I think in most states/lenders you need a 20% down before you can get away from required tax/insurance escrows. I didn't do it because I wanted control over what company and policy we were using, and because I wanted the interest on the taxes. The bank is already making way too much off me for me to give them even more gratis.

I agree with sfbubblebuyer. I pay my own taxes and my own insurance when it is due. I control all my bills. I want to know I am getting the best rate possible on my homeowners insurance (as well as all other insurance) so I manage it with a trusted insurance agent. I want to personally look at and review my tax bill every year, and pay either for the year then, or every six month when I want to pay it.

NFW I am letting my mortgage company handle it.

I am thinking about forgoing escrow of taxes and simply paying them as they come due.
Here's the trick. In ye olden days, if you had a high enough LTV, they wouldn't impound (at least that's my perception). Now, I noticed you have both the "lost interest" AND an upfront cost (which is usually a fee, or less of a credit towards closing costs). You can see this on amerisave.com if you elect to "waive escrows" on one of the pull downs. At Chase, it's a difference of 1/4% on the upfront points. I believe there is a increasing emphasis on impounding taxes as the banks found out during the bust that customers wouldn't pay their property taxes when money got tight.

Impound escrow can take care of it. Sure, you got crappy tax system there in NJ and NY though, your bank should be able to handle it. Or you can do it by yourself. I don't think there're gonna be much difference b/w two options since you're going to get that payment shock anyway when you make a leap from renting to owning. Let them spread the cost for you for a fee, or you do that yourself, it's up to you.

sfbubblebuyer says

I didn’t do it because I wanted control over what company and policy we were using, and because I wanted the interest on the taxes.

You do have control over what company you contract with for homeowners insurance. Always - unless you don't have a company. Then the bank will find one for you. But I've always found the company (use one for all my needs and get discounts). All they do is pay the bill.

I guess I'm in a different boat than ya'll - My taxes are a little over $900 a year so the interest I'd earn would be next to nothing.

If you are disciplined enough to self-escrow, that gives you the most control.

On the day I pay my mortgage I deposit to a dedicated savings account 1/12th of the amount I expect to need for taxes and insurance.
(1) I am able to react more quickly when I know or have reason to believe that my escrow amount needs to go up. Example, I immediately increased by $5/mo when my hazard insurance went up $60/yr. One year my property tax went down. I reduced my monthly escrow beginning the next month.

(2) The mortgage company adjusted escrow once per year. My hazard insurance is due in August and property tax is due in January. Mortgage holder would do an escrow review in March, send a notice of any adjustment in April, and make the increase effective with the June payment. The adjustment ends up being a larger monthly amount because there are fewer months in which to divide the increase before these bills are due again.

(3) Mortgage company always paid the property tax in January. Because I pay it myself, I can choose when to pay it. I can pay all in December (to get deduction this year) or all in January, or 1/3 each in January, April and July.

(4) This is a big deal and I am surprised elliemae did not know this (or maybe her state laws are different). Mortgage company has some weird formula that the government allows that permits them to set a minimum amount that the escrow account cannot go below. I think it is equal to two months reserve. So, depending on when tax and insurance bills are due, the escrow amount that the lender sets will be 10-15% higher than it would be if you were self-escrowing. This creates a cushion for increases so that your account is not short when the bills come due. I have demonstrated how I control that myself.

(5) If you ever refinance with a different lender… pay attention to this. Your new lender will want you to pre-fund your escrow account, but you have to wait several weeks to get a refund from the escrow account at your old lender. You will probably need several thousand dollars to deposit to your new escrow account.

Convenience vs self-discipline. If your lender gives you a choice, pick one and try it. You can always change your mind. What I don’t recommend, is SAVING on your monthly budget by not opening a lender escrow AND not funding a monthly reserve. If you don’t have a plan to be able to pay the property tax bill when it is due, you could cause yourself a problem.