Wednesday, March 19, 2008

We Got Rid of Our Escrow Account!

My husband and I are not big fans of giving companies free loans. For example, we keep our tax withholding low so that we're not giving the federal government a free loan every year. Along the same lines, our escrow account on our mortgage has always bugged us because our mortgage company gets to earn interest on our property tax money all year long instead of us. Not anymore!

For quite awhile, I had been considering refinancing to get rid of our escrow account, but our fixed interest rate is as low as, if not lower than, any current rates out there. I wasn't convinced it would make sense financially to refinance.

Then, about a month ago, I read Prime Time Money's article about Saving For and Paying Your Own Property Taxes. PT suggested that his readers try calling their current mortgage company and asking them to remove the escrow account. It sounds silly, but I had never thought of that!

I was a little skeptical about my mortgage company, Wells Fargo, being willing to give up what was for them an easy money-maker. Nonetheless, I sent them an email asking about removing our escrow account. They sent a message back saying that we could do it if we qualified and that they would only close it out via a phone call.

About two days later, I received a letter in the mail stating that we qualified to have our escrow removed! My husband called Wells Fargo and asked them to remove the account. They said we should received a check for the balance in the escrow account within a week.

A week passed and our online information still showed the escrow account. Hmmm. I sent Wells Fargo another email, to which they replied that it was "processing". I'm pretty sure that meant that they had forgotten about it because the very next day our account showed that the escrow had been removed. Woo-hoo!

I did some math on the check we should be receiving this week, and the mortgage company was keeping about a $500 "reserve" in the escrow account. The amount I need to have saved for our property taxes (and insurance) at this point in the year is about $500 less than the amount of the check we're getting. That $500 will be going right into our new siding fund.

Thanks for the idea, PT. I owe you one :)

Has the personal finance blogosphere given you an idea that was able to save you money? I'd love to hear about it in the comments or, better yet, write a blog post about it!

14 comments:

HS @ Our Debt Blog said...

This is on my list of to do's!!

I need to call them soon.

HS

That One Caveman said...

We want to do the same, but the bank will not release us from escrow until we reach 80% Loan-to-Value. According to my snowball forecast, we'll be able to reach that amount in May 2010. Hopefully my raise and other found money will get us there sooner.

Becky@FamilyandFinances said...

@that one caveman
That's one thing I didn't mention in the article. We own almost half of our house, so I didn't ask the mortgage company if we needed to have 20% of the house paid. That's probably the case with most mortgage companies, that they'll want 20% invested.

Good point!

Ms. M&P said...

Interesting...I've never even considered doing that! I'm going to tell my friends ;)

spillingbuckets said...

I'm don't have experience with a mortgage (rent now, saving to buy) - why would you need an escrow account in the first place?

Not trying to be judgemental, just trying to learn.

Becky@FamilyandFinances said...

@spillingbuckets
A lot of (most, actually) mortgage companies require an escrow account, particularly if you're putting less than 20% down on a house. I guess it's their way of making sure that your property taxes get paid and that there's insurance if the house burns down. They're trying to protect "their" asset.
Good question! :)

Mom said...

wow. I didn't know you could do that. Interesting!

Jennifer said...

When we took out our current mortgage we did not do escrow. The thing is that the first mortgage place we contacted wanted a fee of over $300 in order for us to handle this on our own. Ridiculous! I called another place and let them know I was comparing and what the first offer was and the second place waived the fee and lowered the interest rate. It has worked out very well for us to do it ourselves and I make money in interest each year.

Becky@FamilyandFinances said...

@Jennifer
Sounds like you did a very good job getting your mortgage. You're much more informed than the average American :)

moneyloveandchange said...

I just got the idea to do this recently, and I am definitely going to put it on my list of things to do.

We refinanced only one year after getting our home - between the extra we paid on our principal and the huge increase in property values, we were able to get rid of the PMI. I didn't think of getting rid of the escrow account at the time, but now I'll definitely have to call the mortgage company to ask!

Aaron said...

I approached my mortgage company (Taylor, Bean, & Whitaker) about getting rid of the escrow account so that I could pay the real estate taxes on my own. This was about a year ago, and they told me that it wouldn't be a problem as long as I paid a one time fee to do so. Has anyone else come across this? At least they deposit interest from the escrow funds into my escrow account every few months.

Becky@FamilyandFinances said...

@Aaron
Wells Fargo did NOT charge us to remove the escrow account. However, my in-laws DID have to pay a fee to get their escrow account removed. They felt it was worth it to pay the fee, but I'm not sure how much the fee was.

Michael A said...

My mortgage company, CitiMortgage, wants to charge me over $600 to close my escrow account. I have over 20% equity in my home. They don't trust me to pay my taxes or insurance even though I call them to remind them that I have received the tax bills and they don't know how much to pay or when payment is due.

Becky@FamilyandFinances said...

@Michael
Wow! That sounds frustrating! I feel for you :)