Thursday, October 25, 2007

Closing Escrows

Escrows, in my humble opinion, SUCK.

The basic idea, is that you owe taxes every 6 months, and insurance every year on your house. The extended idea is that you have extra money in this account just in case taxes or insurance goes up next time it needs to get paid. This way, you pay month to month, the mortgage bank makes sure it gets paid on time. Every month, you have to pay Principal, Interest, Taxes and insurance. If you don't pay it in full, they won't accept payment.

This causes several issues for the homeowner.

Let's say you owe P&I (Principal and Interest) of $1000. You also owe your Escrows T&I (Taxes and Insurance) another $300. So each month you must pay $1300 no matter what. However, if you closed your Escrows you would only owe the bank P&I of $1000. If you happen to be a little short on the due date, you only owe then $1000. You can come up with that extra $300 next week or even next month.

Another issue is that 'cushin' they build in for when the T&I goes up. If your escrows fall below a certain amount, they will automatically raise the amount due every month. So, every few months the computer looks at things and decides you need to pay another $50 "Just in Case".

Lastly, you know what the bank is doing with your escrow funds you give them? Of course, they are investing it and making money off your money. Since they are not giving you any interest rate like a savings account would, why let them make money at your expense?

So, here's what I did; I called Countrywide and told them to close the escrow account. We settled up on the funds left over. Now, I am responsible for paying my own taxes and insurance when they become due, on both my houses.

In order to make sure this happens, when my weekly paycheck is deposited into my local bank, money is automatically moved from checking into savings. The funds are then manually moved into my High Yield Online Savings Account. I manually do that part because I may want access to some of that money for some reason.

So what happens is that instead of Countrywide making money off me, I'm the one collecting the interest while it sits in the bank for six months. I also owe them much less per month than I did before, making the monthly payments easier to make. And lastly, i don't have some computer deciding I need to pay even MORE per month than i already am.

Think i am kidding about that computer? My final straw was when my payment went up again to $200 per month MORE than I actually owed anyone. So, instead of seeing how I owed $350/mo in T&I, it wanted $550/mo in T&I "Just in Case". So, all I had to do was take $3600 in taxes plus $600 insurance and divide by 12. That means that I only owe $350/mo. So if I divide that by 4 weeks, I shovel away $88 weekly into that savings account. For those of you who can do the math, yes, every few months there is a 5th week. That extra money can go toward any raised rates that may occur.

"Just in Case" went from $200/mo to $0/mo
I make 5.05% on the Escrow funds until they get paid every 6 months.

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