Home Buying in 95816>Question Details

Sharms, Other/Just Looking in Folsom, CA

Paying taxes with our monthly mortgage payments - is this a good idea or should I just pay them as they come?

Asked by Sharms, Folsom, CA Mon Mar 16, 2009

will i be paying interest on them if included with monthly payment? will my mortgage rate be lower if I include them in monthly payments?

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If you are new homeowner, often the lender will prefer that you pay your insurance and taxes monthly into an escrow account. If you show that you have a good credit history and have owned a home before the lender may allow you the option.

Each lender has their own policies, but when I am working with a new homebuyer, it is easier to pay into an escrow account so that you're sure you have the monies available when your taxes and insurance are due. Even if the lender doesn't require it, you may find it's a good way to ensure your own peace of mind as you adjust to the idea of home ownership and that it involves.

I hope that helps. Your specific answer will come from your lender.
Web Reference: http://www.suearcher.com
2 votes Thank Flag Link Mon Mar 16, 2009
You will not be charged interest on your impound account payments, in fact you will normally have an extra 2 months worth of payments stacked up that your Mortgage Bank is earning interest on just by having access to those dollars in their accounts.
You can instead earn the interest income if you keep the money set aside in an interest bearing account until your installment payments are needed and pay for them yourself.
There is no right or wrong is just what you are more comfortable with.
0 votes Thank Flag Link Sun Apr 28, 2013
Sharms - if your loan is government backed, FHA or VA, you don't have a choice, impounds are mandatory....for conventional loans, impounds are usually optional...

And when using an impound account, you aren't paying interest on your taxes/insurance, you only pay interest on your actual loan balance....there's also no cost to set up an impound, nor do you get a lower rate, though you may get a slight pricing incentive of 1/8 point, which typically equals means $100-$200 reduction in closing costs...

Also, if your lender has collected too much $$ for your impound account, they are required by law to send you these excess funds!

Let me know if there's any more information I can provide,

Best, Jeff Marr
0 votes Thank Flag Link Sun Apr 28, 2013
If you don't have an impound account, a good way to make sure you have the funds when the taxes and insurance are due is to set up a separate savings account at your bank or credit union and have the appropriate amount deducted and automatically deposited from your pay checks (if you have a "regular" job)
That way the money is there when you need it. Also don't forget to put some $ aside for your supplemental tax bill if there will be one.
0 votes Thank Flag Link Wed Mar 18, 2009
Thanks to everyone for excellent answers! I spoke to my lender who says that if you have an impound account and say you want to change your homeowner's insurance for whatever reasons, it usually takes an act of God to make that change with the bank! Also, this particular bank does not give a discounted rate if you have an impound account.
0 votes Thank Flag Link Tue Mar 17, 2009
Sharms,

This will depend on your loan and your personal habits. Some lenders are going to require an impound account (monthly payments). The benefit of paying them when they come due is that you are not pre-paying, hence losing interest, on your own money by paying so far in advance. The flip side to this is that some people have a difficult time setting money aside and not spending it.

Hope that helps!
Web Reference: http://InLoveWithSacto.tv
0 votes Thank Flag Link Tue Mar 17, 2009
Most loans that are higher than 80% of the purchase price require the borrower to include this. It is called either an impound account or a mortgage escrow account. Borrowers with more than 20% equity usually don't have to do it, but like you suggested, they might get a little rate reduction (1/8 of a percent) while one-eighth might not seem like much at first, it translates to a savings of $125 per year per 100K borrowed. Pretty reasonable compensation for the savings account interest lost.
0 votes Thank Flag Link Mon Mar 16, 2009
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
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If you are disciplined enough and are not required to have an escrow acount the money could be earning you interest rather than sitting in that escrow account. It depends on what kind of financial personality you have.
Web Reference: http://andreaandterry.com
0 votes Thank Flag Link Mon Mar 16, 2009
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