Should you waive escrows on your mortgage?

So, the question is, is it worth waiving escrows?

The major lenders all charge a 1/4% fee in order to waive your escrows. I will try to show you why it is a good idea to pay that escrow waiver fee and pay your taxes and insurance on your own if you are keeping your house for at least 5 years or more.

When you are paying the bills on your own, you will be able to save that money and earn interest and you will not have to come up with as large a check at the closing. However, paying that 1/4 point will take a while to recoup with the minor amount you can earn on this money.

Here's an example

Assumptions

You are taking out a $150,000 mortgage,
Your property taxes are 2,400 per year and
your homeowner's insurance is 480 per year
If you save the money, you can earn 5% per year on the funds.

Let's compare

The waiver fee is 1/4 point or $375
5% of $2880 per year is $144 or $12/month
In just 31 months you will have made back the $375
At $12 per month for the other 329 months of your loan you would end up $3,945 ahead!
Looking at it another way, you are paying just 96 cents a month to get to keep your money. This means that if you earn just 1% on your money you're ahead!

The moral of the Story?
As usual, whenever the bank does something for you they will make money on it. Paying your own taxes instead of having an escrow fund is a very easy way to save money.

Don't let the fact that you pay a fee to avoid escrows scare you off. As long as you can budget and put the money away and pay the bills yourself. Do it.

Always understand that if someone is covering that escrow waiver fee, you are paying for it along the way.

Doesn't it make sence to do business with someone who will be honest and up front with you?
If so, give me a call!

Harry Smith email Harry@dailyinterest.com or reach me by phone Office 1-248-548-7655 Cell 1-248-514-9000	Drew Smith email drew@dailyinterest.com or reach me by phone Office 1-248-548-7655 Cell 1-248-703-7770
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