Escrows & Impounds – The Bottom Line

Everyone hates paying property taxes. Property taxes are due twice a year on April 10 and on December 10. So if you have a mortgage in place already or are thinking about getting one, consider getting an escrow account set up a monthly basis. This will help you secure the best possible interest rate. Escrow accounts are actually required on transactions with less than 20% equity.

What is an escrow account and why do they matter?

They matter because if you allow your mortgage lender to collect for property taxes and insurance on a monthly basis with your mortgage payment, they get to use that money and invest it for themselves. They will reward you for this by giving you a slightly better interest rate than if your property taxes and insurance are paid separately. It depends on what time of the month and what part of the year you’re closing your mortgage loan on. We usually estimate for about six months of property taxes as a prepaid items because they are due no matter what.

For example on a purchase scenario we will collect for six months of property taxes as well as for a few months of hazard insurance and this will be a prepaid item that will show up on the final closing statement at the close of escrow. The reason is because the lender needs to estimate however many months worth of property taxes or insurance is due for you to get caught up with the billing cycle.

Are escrow accounts ever waived?

The answer is yes if you have 20% equity in your property or more you can get property taxes and insurance removed from your house payment. You can set up the mortgage with property taxes and insurance included with your house payment and then when you’re first bill comes you can call up your mortgage lender and request the removal of your impounds.

Lots of borrowers today find having a monthly account for property taxes and insurance included with their house payment to be easier because they’re not getting a surprise check twice per year. It’s all a matter of preference. If you have less than 20% equity in your property you must have property taxes and insurance included with your house payment.

If you have any questions about property taxes or are in need of a quality home mortgage loan give me a call Scott Sheldon mortgage lender at 707-217-4000. We can discuss escrows and impound accounts and get to the bottom line.

Contact Scott About Your Home Loan Questions

Please email me your question or scenario and I'll get back to the following business day. -Scott