We bought our first house in 2014. However, we didn’t have enough for a 20 percent down payment, so we had to take out private mortgage insurance (PMI). Therefore, we also had to have an escrow account for our homeowner’s insurance and property taxes. We didn’t realize that our property tax would go up the following year, and we’d have to either pay a lump sum for the difference or increase our monthly house payment. This happened every single year. It’s the primary reason why we don’t use escrow anymore.
Why We Don’t Use Escrow on Our New House
This year, we moved to a new state. When we bought this house, we had money to put twenty percent down. We also had the option to pay our homeowner’s insurance and taxes on our own rather than using escrow, which we chose. Why? Several reasons impacted our decision.
Our House Payment Stays the Same
Our house payment will stay the same for the entire 30-year mortgage. I like knowing how much I owe each month and not worrying about the yearly escrow increases.
We Have Control
I have heard of a few unfortunate events when the company in charge of escrow doesn’t make a payment on time. Since we make our homeowner’s insurance and property tax payments, we’re in control of those bills being prompt. We don’t have to rely on another person to make those payments on our behalf.
Can Earn Interest on The Money
Our property taxes on our new home are three times as expensive as those on our old house. That’s a lot of money, which I can put in a high-yield savings account and earn interest on while I wait for my property tax to come due. However, I make nothing when my money sits in an escrow account.
Who Should Choose Not to Use Escrow
Only some have the option to, and others choose not to, use escrow. Only select this option if you:
Have 20% Down or More on Your Home
Putting this amount down will allow you to avoid PMI and choose to avoid escrow if you want. However, if you have less than 20 percent down, you will likely be required to use escrow.
Are Disciplined to Set Aside the Money
I set aside several hundred dollars every paycheck for our property taxes. I also set aside money in a fund for our homeowner’s insurance. If you have the discipline to set aside the cash AND not spend it, you should do fine making these payments on your own. If you lack the discipline to do this, you should use escrow.
Are Timely with Bill Payment
Finally, are you organized and timely with bill payments? If you’re not, you should choose an escrow account, so you don’t need to worry about making more payments, especially since homeowner’s insurance and property taxes are due every six months or yearly, which can be harder to remember.
Final Thoughts
We have several reasons why we don’t use escrow. Choosing to pay our own bills works for us, but it’s not for everyone. Most homeowners choose to use an escrow account. The best option for you depends on your motivation and if you’re able and willing to set aside the money for the bills monthly and make the payments on your own.
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Melissa is a writer and virtual assistant. She earned her Master’s from Southern Illinois University, and her Bachelor’s in English from the University of Michigan. When she’s not working, you can find her homeschooling her kids, reading a good book, or cooking. She resides in New York where she loves the natural beauty of the area.