How Can I Stop Paying Escrow To My Mortgage Company And Pay The Tax Bills Myself?
If you are like many homeowners, you might have wondered why your mortgage lender is the one who handles your yearly property tax payments since, after all, you technically own the house. To those unfamiliar with the process, the escrow system on which many mortgage companies rely to store and collect monthly tax-account deposits might seem unnecessary and cumbersome. In fact, many homeowners prefer to simply save the money themselves and make an one large annual tax payment directly to the appropriate municipality or county.
Despite the added layer of bureaucracy and additional amount of work, mortgage lenders collect extra funds in escrow throughout the year in an attempt to prevent borrows from failing to pay county or city taxes when they come due. In fact, local governments routinely order liens on residences that carry substantial tax balances that are past due, and in some cases, local housing authorities may seize delinquent homes and sell them at auction in order to recoup their lost revenue. When this happens, both the mortgage lenders and the homeowners face significant losses.
In other words, your mortgage company is protecting its interest by requesting that you pay escrow tax payments and, in doing so, it is also technically protecting your interests as well. After all, your mortgage lender is willing to handle the clerical issues involved with annual tax payments by doing the work for you. Still, you may be losing a small amount of money by placing these tax payments in escrow every month. Those who do not have an escrow-tax arrangement with their lenders may choose to earn interest by setting aside monthly payments in a separate account designed for their annual property taxes. Based on average calculations, homeowners who invest $10,000 in short-term CDs or savings accounts with an interest rate of 2 percent may rake in up to $200 in interest alone.
If you feel confident in your ability to save money and would like to try to save for your future property tax payments without going through your mortgage lender, you will need to tell the company that you waive your right to the escrow clause stated in your contract. While refinancing your mortgage is probably not necessary, you will likely need to sit down with your mortgage lender and reconstruct that part of your contract. In addition, while most lender will not charge you extra for this new agreement, you will need to meet a specific equity threshold in order to qualify for the change. In most cases, this threshold falls around 10 percent of the total value of the home.