Jewish World Review Dec 20, 2007 / 11 Teves 5768
Dump your bank escrow account, earn some interest
By Vicki Lee Parker
http://www.JewishWorldReview.com | (MCT) Many homeowners are stunned to see an updated property assessment for their homes. Some might be inclined to throw the paper with the ominous figure into the drawer and try to forget about it. That would be costly, said Ricardo Cobos, vice president of Cary Towne Mortgage in Raleigh, N.C.
"This is where you need to be a savvy and proactive consumer," Cobos said.
Homeowners often make the mistake of not notifying their mortgage companies when their property values change, he said.
No one knows how much tax bills will rise. The mortgage company does not adjust the escrow account - the money held by the company to pay your yearly property taxes and insurance premiums - until it gets the tax bill. If the account has a deficit at that point, the homeowner usually gets a hefty bill, due upon receipt.
To avoid another shock, homeowners should contact their mortgage bank now and talk to someone in the escrow department. Fax the lender a copy of the home's new value. The bank representative should be able to estimate the new monthly payment, which is better than getting hit with a big bill later.
A higher tax bill might make some homeowners rethink the idea of escrow altogether.
Many people prefer to have their taxes and insurance in escrow, because they worry that they won't have the discipline to save the money themselves.
But if you are like me and enjoy watching your money grow, here's another option: Find out whether you are eligible to waive your escrow account.
Typically, banks will allow you do this if you have at least 20 percent equity in your property. If you qualify to close your escrow account and you have the discipline to save, you could put that money into an online banking account. Internet banks continue to battle for market share, and they are paying as much as 5 percent interest, even on plain old savings accounts.
This option is ideal for people with large tax bills. But even if your annual tax bill is, say, $1,500 and you find a savings account paying 4.5 percent, you could earn $67.50 a year. That might not seem like much, but that money could pay one of your monthly household bills.
Amy Bonis, a certified mortgage planner in Raleigh, N.C., said that creating your own escrow account is a great savings plan, but there are some caveats.
"Because lenders aren't making money, some will charge you a fee to waive the account," she said. The one-time fee typically is about a quarter of 1 percent of the loan amount, she said. So if your loan amount is $250,000, the fee would be $625.
Cobos said that some of his clients have closed escrow accounts and were not charged a fee, particularly if they had had their loan more than a year.
To get the full benefit, you have to save the money throughout the year. Plopping money into an account a couple of months before the bill is due will not yield much cash.
"If you are somebody who is financially secure and like to control your own money, this is absolutely a good idea," Bonis said. "But you have to have the discipline to put the money aside."
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