Real Estate Tip: Escrow Accounts -- Do You Really Need Them?

If you have a mortgage on your property, whether it's for your personal residence or a real estate investment, chances are you have an escrow account. But if you are working on building wealth through real estate, you may want to take a hard look at your escrow account (or accounts, if you own more than one piece of real estate) and decide if you really need it.

Escrow accounts, also known as impound or reserve accounts, are often maintained by mortgage lenders on behalf of their borrowers. They typically work like this: the borrower's monthly payment covers the loan principal and interest, as well as a prorated amount that is deposited into the escrow account. The lender holds those funds and uses them to pay taxes and insurance for the property when those bills come due on an annual or semiannual basis.

There are a number of benefits to both lenders and borrowers. Serious problems can arise when taxes and insurance bills are not paid, so having that money in escrow helps reduce the lender's risk. The lender also benefits by having funds on deposit; most states don't require lenders to pay interest on escrow accounts, but they can certainly earn money on them. And secondary market buyers who purchase mortgage notes generally pay more for loans that have escrow accounts.

Many borrowers prefer the convenience of spreading the payment of a big bill over 12 months instead of having to make it at one time. Also, the lenders take care of tracking tax and insurance bills, so the borrower doesn't have to. However, if the value of the property is high--creating correspondingly high tax and insurance bills--the borrower is losing interest. Or, if you are a real estate investor with multiple properties, the total of your escrow accounts could be substantial. For example, if your taxes and insurance run a total of $12,000 a year and you have an escrow account, you're losing hundreds of dollars in simple interest and even more if you were to put that money in a higher-yield investment. And when you own several properties, the cost of the convenience of an escrow account increases accordingly. As part of your overall wealth-building strategy, you could put that money in a short-term investment (perhaps a property you intend to quick-turn) and let it work for you until you have to pay your taxes and insurance.

Policies on escrow accounts vary by lender and according to state law. Generally, escrow accounts are required when the loan-to-value ratio is 80 percent or higher. Some lenders charge a fee to waive the escrow account; before accepting such terms, be sure the cost of waiving escrow is less than the potential earnings from the interest.

Finally, be sure you have the discipline and resources to pay your property taxes and insurance on time before you take the step of eliminating your escrow account.

Jordan Taylor is the editor of Millionaire Mentor? Newsletter, which is published by Whitney Education Group, Inc.? To sign up for a free subscription, visit http://russwhitney.com

---

How to Find a Direct Homeowner Loan

If you've been thinking about applying for a direct homeowner... Read More

Home Mortgages: Up, Up and Away!

Refinance NOW-before it's too lateIf you haven't found the time... Read More

Should You Choose to Refinance?

Refinancing has become a valid option for many individuals with... Read More

How easy is it to get a Commercial Mortgage in the UK?

As is the case when applying for any mortgage, be... Read More

How To Get a Mortgage If Youre Self-Employed

If you are self-employed, work on a contract basis, or... Read More

Finding the Online Homeowner Loans You Want

Online homeowner loans have been growing in popularity in recent... Read More

Refinance Your Second Mortgage

A 2nd mortgage is a secured loan on your property,... Read More

Reverse Mortgage Offers Fresh Approach To Income From Real Estate

If you owe 40 percent or less of your original... Read More

How to Find a Good Online Homeowner Loan

A quickly growing trend in lending is the online homeowner... Read More

Home Loans: Where Do I Begin?

So you've finally decided you've had enough of paying rent... Read More

No Fee Mortgages Coming Soon

Buying a home, especially for the first time, can be... Read More

Home Equity Loans ? There?s Gold In That There House

To paraphrase an old familiar quote that goes "there's gold... Read More

A Guide to Quick Homeowner Loans

The search for quick homeowner loans can seem futile at... Read More

How Much Home Loan Can I Afford?

Have you ever asked yourself how much home loan can... Read More

Tips for Finding the Best Agri Mortgage and the Best Agri Loan

The Research Rates of Agri MortgageFirst thing, when finding an... Read More

How to Save Money by Using an Independent Commercial Mortgage Broker

Being a creature of habit can cost you plenty when... Read More

Home Equity Loans 101

A secured home loan differs from an unsecured loan in... Read More

Home Mortgage Refinancing ? What?s in Your Contract?

Are you one of the millions of Americans who will... Read More

Mortgage Research Good News for House Buyers

Figures from the Council of Mortgage Lenders show that in... Read More

Remortgage Serves To Rewind The Reimbursements Of Mortgage

It takes a mighty big effort to secure a home... Read More

The Truth About Shopping for Mortgage Rates

With so much lender advertising focusing just on rates, you... Read More

The Best Tactics for Getting a Quick Homeowner Loan

Trying to find a quick homeowner loan can seem difficult... Read More

Buying a Home With Poor Credit Is Easier Than Ever

Buying a home with poor credit is easier than ever... Read More

How do I know what is the best Second Mortgage Home Loan for me?

The information in your credit history helps mortgage lenders decide... Read More

Student Home Purchase Plan

Tuition costs are climbing, housing costs are climbing, it seems... Read More

How To Save Thousands in Interest on Your Home Mortgage!

So you have a mortgage on your home or planning... Read More

A Mortgage and Bank Trick You Should Avoid at All Costs

Once you've purchased your home, you will begin to get... Read More

Basic Tips for First Time Home Buyers

The first time you purchase a home is an exciting... Read More

Bad Credit History? How Financing and Buying a Home Can Help You Improve Your Financial Situation

Financing and buying a home can help improve your financial... Read More

Mortgage-Refinance Treachery: Avoid Mortgage Bankers and Brokers Biggest Trick -- The Sales Pitch

What the average homeowner or home buyer fails to realize... Read More

Refinancing After Bankruptcy

Refinancing after a bankruptcy can seem like an especially difficult... Read More

Mortgage Soup

Looking for home mortgage loans can get confusing with the... Read More

Understand a Real Estate Appraisal

Happy New Year. Make a difference this year. "Pay it... Read More