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.
-
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!
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