What is mortgage escrow?  The amount you must pay each month to cover your property tax liability and property insurance annually.

Not many people are aware that your mortgage lender may allow you to control your own escrow account.  This has certain advantages.

A self-managed escrow account can be located at the financial institution of your choice.  You can shop for the best deal. If it is interest bearing, you will make a little money as the balance increases.  It may not be a lot but “something is better than nothing.”

Another advantage is you would be allowed to make adjustments based on your property tax bill almost immediately.  Many municipalities allow you to meet your property tax liability in installments.  This means that you do not have to lay out the whole amount due in one lump sum.

The disadvantage of required (forced) mortgage lender controlled escrow accounts is that they always automatically increase the amount you should pay annually, and thus, monthly. Whether your property tax liability actually increased or not, the mortgage lender will require you to pay more. This is your money the lender is using for their own purposes.

Another disadvantage is when the property tax bill is submitted to the lender, a check for the full amount is made payable to you and the municipality.  Because of this, it excludes you from the installment feature.

Some mortgage lenders do pay interest on a required escrow but most do not. This means the mortgage lender is using your money for free!

The issue of escrow should be carefully checked out as you are arranging your mortgage loan, especially in light of the high property tax rates of today!

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