Escrow account. I took my first mortgage a year ago and now paying to the same company?

Question

Both rate and interest as well as Escrow and taxes.
While checking on moving to a different mortgage company they said that I don't have to have escrow account. Can you explain why I need (or not) it? what are the pros and cons in having it?
(My house is insured through different company)

I'm not sure I understand why I need the escrow, if is just a place where they put the money for the taxes and collect the rate on it instead of me paying it all at once?

My loan is below 80% so basically it is only a place where they keep the taxes? and I just pay it directly?

Answer 1

most lenders charge it you waive to have an escrow account.
sometimes they may waive the charge if you're under the 80% LTV......most often they charge either way...

it's about 0.25% discount point charge.


most lenders want to make sure that you're paying the property taxes on the home..or the county can foreclose on the home ...and the bank will lose their money.
same applies with home insurance...if the house burns down then the bank will lose their money

Answer 2

Most lenders require you to escrow if the loan they're giving you exceeds 80% of the value of the home. So if you have a property valued at $100,000, and you have an 80% first mtg and a 20% second mtg, you will not have to have escrow accounts. If the first, though, is 81%, then an escrow account will be required. Notice it isn't the total loan-to-value of all accounts, but just of the first mortgage. Home equity and other second mortgages do not escrow.

Once the ltv hits 78%, the escrow should just fall off. When you reach 80% you can ask the lender to check it out. If the value of the home has appreciated, you may be able to get rid of the escrow account.

The reason the bank wants you to escrow is so they control payment of taxes and insurance. This protects their investment in your property.

The reason you might want to escrow is that you have one less worry. Every month you pay 1/12 of the annual taxes and insurance. If you don't escrow, you'll have to pay the whole taxes at once and the whole insurance premium at once, maybe even at the same time.