Many home buyers have questions about escrow accounts.  Many lenders require them.  Most buyers feel that they are capable of planning for the future and will save money each year for their taxes and insurance.  Unfortunately many times life gets in the way and it doesn’t or wouldn’t happen.  I saw this great article in Bankrate that spells out the pros and cons of escrow and wanted to share.

Should you save in an escrow account?  4 questions to ask

When you get a mortgage, the lender usually adds the property taxes and insurance premiums to the monthly payment.  They then set aside the money in an escrow account to make sure those obligations are paid on time. This protects the lender from tax liens and uninsured losses that the borrower can’t repay.

The lender typically will cover any shortfalls.  This will be until it can adjust your monthly payment to make up for increases in tax rates and insurance premiums. Your monthly mortgage payment will fluctuate from year to year, even for a long-term, fixed-rate loan.

Lenders differ on this requirement

In some cases, you can avoid escrow. Some lenders allow you to pay your own property taxes and home insurance premiums, especially if your loan-to-value ratio is below 80 percent. But don’t be surprised if the lender increases your interest rate to compensate for the additional risk it is assuming.

Once an escrow requirement is in place, it can be difficult to persuade a lender to cancel it. If your loan is sold, as is common, and there is nothing in the lending agreement that provides for cancellation of the escrow requirement, you’ll have to live with the decision of your new mortgage servicer.

To Read The Entire Article from Bankrate Click Here

Bottom Line

Escrow is something that most buyers with a mortgage are required to have.  You need to understand it.  Contact us if you have questions, we will help you find the answers you seek.