Property Taxes and Insurance Escrow Plan Foiled!
Right now, I’m still escrowing my property taxes and homeowner’s insurance through my mortgage company. In Pennsylvania, these bills are all mailed directly to the homeowner and then the homeowner forwards them along to the mortgage company who pays them out of their escrow account.
My mortgage company listed on their website that they pay these bills 20 days before they are due, but from watching the paid balance of taxes on the website, I’ve come to realize that they really pay the bill when they get it.
Why does this make a difference? I get my tax bills 2 months before the early payment due date. That early payment date gives me a 2% discount on my taxes. The closer I can get to my last mortgage payment before the due date, the higher my escrow balance will be. The higher the balance, the less chance I will fall below the minimum threshold where they will require more escrow money the following year.
So, for example, if I have $800 escrowed and my final mortgage payment before the tax due date will add $400 to that, my escrow balance will then be $1200. My $1100 county property taxes will leave me with $100 in my escrow account after payment. If I sent in the bill early, I would be subtracting $1100 from $800 leaving me a -$300 balance. A negative escrow balance is a no-no so the mortgage company projects out for the following year that I may, again, fall $300 behind and will give me the option of paying $300 by the end of this year or paying an extra $25 per month each month for the next year in order to make up that shortfall.
These numbers are small but what about if my county, township, school district, refuse and homeowner’s insurance all increase a little? A bunch of little increases all added together can amount to a whole lot in the end, which is something I’m trying to avoid.
So, I’ve determined that if I mail my property tax and insurance bills in 3-4 business days before my last mortgage payment prior to the tax due date, the mortgage company will pay the taxes about a week to 10 days later and my taxes get credited in plenty of time to make that early payment deadline. I consider this as giving myself maximum escrow bang for my buck.
All of this has worked out great until now. I logged into my mortgage company’s website and see that the exact amount of the bill I was set to mail into them this week was already listed as paid. Apparently, they get PA tax bills “sometimes”. Seriously, that’s their word, not mine. When they get them, they pay them, but there’s no guarantee they will. Gotta love that system, huh? I’ll call the township tax office and ask them about this. It’s no crisis or anything, but just moderately annoying t ohave that level of uncertainty surrouding this important issue.
In the meantime, I already have info from my mortgage company on the process I need to follow to get them to stop escrowing money for me.
Why would I want to pay my taxes and insurance directly instead of escrowing them?
1. Well, if I’m not doing it myself, I don’t trust it. I can literally walk down the street to pay my property taxes and get a receipt or just drop a check off and have an electronic record of payment. I don’t have that now. The process right now is to mail in the tax bill to the mortgage company and then my indication of payment is looking at the website showing the total taxes paid for the year. That’s not concrete enough for me. That means they mailed the check, not that it was received. Also, those are a lot of points where this system could fail (me, USPS, mortgage company and tax bureau whereas a direct payment would be just me and the tax bureau).
2. I’ll keep the money in savings until it is due. I get two separate property tax bills a year (county/township/refuse and school district) plus a homeowner’s insurance bill that I’m supposed to forward on. Together, these might all be a big chunk of money. Split like this in three separate bills due at separate times makes them much more manageable. The township/county/refuse early payment date is 4/30, the school district tax early payment date is 8/31 and the homeowner’s insurance date is 9/30. If I use a rewards credit card to pay the insurance, I’ll have until the end of October to pay it plus I’ll get the rewards from the card.
It’ll work out. I think that the less people involved in the process, the better. I’ve heard plenty of escrow horror stories to know that this is something I might want to handle myself.
If you need the escrow account as an automatic savings plan to make sure you have the money to pay the bills, by all means, don’t let me discourage you. I’m just looking for a better solution for myself and possibly anyone out there who might have similar concerns to mine.
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