Question:

How to manage a home escrow account?

Answer:

A home escrow account is usually managed by a third party servicer, like a lender. The lender sits between the state and the borrower and is making due payments when they are required. Escrow accounts are often obligatory and cannot be waived.

Your home escrow account is managed the following way - since many people are not well prepared to make a big annual payment to cover property taxes and homeowners insurance, they are making those payments on a monthly basis with the mortgage payment. This extra money is not applied towards the loan - interest and principal - but goes towards the home escrow account. When time comes, the necessary annual or biannual taxes are paid with escrow funds.

Why is it convenient to use a home escrow account?

It is much easier to borrowers to make a $150 payment towards the mortgage payment every month, rather than having to pay $1800 at the end of the year. It is safe for the lender to know that your house insurance is up-to-date as they want the collateral to be protected in case of insurance event; and the state is pleased to have property tax paid on time.

The home escrow account cannot be easily avoided. If you want to avoid opening an escrow account, you will have to convince the lender and/or buy points off the interest rate for the right to avoid using an escrow.

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