In this country, it is very common for people to put money into escrow for property taxes. If you are in the process of buying your first home, you need to have an overview about property tax payments, what they mean, why you pay them, and how you pay them. These taxes can be significant in amount, so don’t look into this as an afterthought.
Putting Property Taxes in Escrow:
A lot of people will pay more towards their mortgage each month, and their lender will then put this excess into an escrow account. That money will then used to pay not just for property taxes, but also for insurance. In fact, many lenders now require this to ensure that homeowners would always be able to make their tax payments. When looking at an overview about property tax payments, you will find that they generally have to be paid either annually or bi-annually, which means the bill can be quite high. By paying monthly into escrow, you effectively spread those costs and make them more manageable.
Should You Escrow?
A lot of lenders demand that people put money into escrow, unless they have been able to pay a deposit of at least 20%. Even then, they may still recommend it. The benefits are clear:
- You don’t have to save up for your taxes.
- You won’t find yourself incapable of paying taxes.
- The money comes out of your income in manageable monthly payments.
The mortgage lender pays the taxes, meaning you don’t have to worry about getting it with the right people either.
That said, there are still people who choose not to put money into escrow. One of the reasons for this is that their lender may not require them to do so. Another reason is that they have paid off their mortgage, which means they don’t make monthly payments anymore. Others prefer putting the money into a private banking account rather than an escrow and earn interest on it, and they feel that they are motivated enough to do that every month.
When you look at an overview about property tax payments, you may wonder whether you should escrow. The greatest question you need to ask yourself is what kind of money habits you have. It is a decision only you can make, and so long as you made an informed decision, there is no wrong choice. However, if you know that you struggle to save money, if you regularly pay your bills late, or if you know that it would be near impossible for you to get the money together in one go, then it is probably a better idea to put your taxes into escrow. On the other hand, if you are someone who is really good at saving money and you know you will have the money available when the time comes to pay your taxes, or if you are simply someone who wants to manage your own taxes without a middleman, then an escrow is perhaps not the best option. However, remember that, with many lenders, you won’t have the option of not putting money into escrow.