what's going on my friends it's bob I'm back again with another video here on the sweet life money
channel I'm gonna start off with a story actually it was about 10 years ago i get this letter in the
mail and i open it up and it's my mortgage company and it wasn't a holiday card wishing me well oh no
it was a thing that says hey we miscalculated your property tax as a result we need you to pay 300
more per month on your mortgage payment whoa what that was like a heart attack waiting in disguise
and i thought well wait a minute why is this happening and then the year after that it was like
fifty dollars more per month oh and then the year after that all of a sudden i get a refund check of
a hundred dollars what's going on here the title of this video is why you should never escrow
in your mortgage account and i want to explain exactly why i'll give you some pros but i'm also
going to give you the cons behind why escrowing is just kind of a waste of time and how you can
get out of it as soon as next month here we go so if you're into personal finance videos and living
your best life and living your suite life drop me a like down below to get started and also be sure
to subscribe so you don't miss the next personal finance video coming to the channel okay so um
we just recently refinanced and after totally killing way too many trees look at all this
paperwork oh my god did you hear that there was a little box on here that said do you want to escrow
or not i chose not because i remembered that day that i got that letter and 300 a month is a lot
of money and especially back then i didn't make a lot of money so i was like whoa this is what are
we gonna do so the reason this happens a lot of times your property tax more so than your property
insurance goes up and it goes down based on the market so as your home values rise typically your
taxes will come along with that and they'll go up as well mortgage companies apply a basic model to
understand how much they should be charging you in your escrow account as part of your monthly
mortgage payment to hopefully pay that off in full well sometimes they miscalculate it and boom guess
what you get screwed and you have to pay more money like i did so i said i got to stop this
so i said no and it's been a joyride ever since i mean we've been living our best life thanks to
not having to escrow our taxes and insurance but let's talk through some prairies first i'm gonna
talk about the good stuff and then we'll get into the the stuff that you need to know the cons that
make this a terrible mistake so the pros are let's say you're just starting off you're a new home
buyer and you're maybe new to budgeting this is a great way to have taxes in the insurance mixed
into your mortgage payment and you don't have to worry about anything at the end of the year
the mortgage company will automatically send away the payment to the property tax to the insurance
company and you don't have to worry about anything it makes it very easy from a budgeting perspective
and you're all set and that's about the only pro i can think of let's go under the cons
okay so here are the cons here's the deal i don't like the fact that i got that 300 bill and i know
i keep harping on that but then i realize that if we can be in control of our money and basically
set aside money for the property tax and insurance we can make up some serious bank i mean compared
to what the mortgage company is probably doing so hear me out on this for a second if we can be
controlling our money which is what this channel is all about taking control of our finance so we
can be the masters of our own life if you know that your taxes are five thousand dollars a year
you divide that up by 12 months or even every week that you get paid and you simply put that money
automatically away in a savings account and then over the period of the year let's say you find
yourself a very good high-yield savings account i would recommend even the citibank as well as
American express they tend to offer some of the highest interest rates so all that money that
you have sitting waiting for the property tax bill or the property insurance bill to come due gets to
gain a little bit of interest in my opinion even if it's a low interest rate of only 0.5 percent
that's better than zero percent interest by sending it to the mortgage company because
i don't know but i would bet that those companies are smart enough to take your escrow account and
they have it invested somewhere in some type of either cd or savings account and they're earning
interest on it and not telling you about it i don't know i have a sneaking suspicion about that
so by controlling your own money and not escrowing anymore you can then take that into your savings
account rack up a little bit of interest and then you're rocking and rolling and then simply
at the end of the year you take the money out of the savings account boom and you pay off
and then you don't have to worry about the adjustments in this various miscalculated mortgage
i thought a lot of times when it comes down to how i was trending my property tax while it does go up
and sometimes it goes down through the years the the mortgage company just totally over calculates
everything so in paying attention to your property appraiser's website and seeing what your property
tax value is you can have a better control of if it's going up or down then you just either
save more money or have extra money in your savings account which is a little bit better
than overpaying a mortgage or underpaying a mortgage one more con to this is that
if you're a nerd like i am i like to calculate everything i like to see things i like to see
progress right now we're on a path to pay off our mortgage in the next five years by the way be sure
to subscribe i'm going to be sharing with you some updates on our mortgage payoff journey and how
we're able to pay off a 30-year mortgage in only five years so be sure to subscribe to check that
out but i i sit here and i wonder you know i like the nerdy thing of being able to look at my excel
spreadsheet but to me it's always been a challenge even 10 years ago in our other house
trying to calculate the principal and interest payment on the amortization schedule with all
the escrow stuff put in so you're paying all this extra money and you're trying to figure
out how do i accelerate my my debt payoff how do i accelerate my mortgage payment it's hard because
you have to consider okay well it's telling me to put two hundred dollars in extra per month on top
of the base rate so if your base rate is only one thousand dollars per month which is principle and
interest you put another 100 on it actually could be that you're actually paying fourteen hundred
dollars and not just eleven hundred dollars why because you're escrowing your property tax and
insurance so it makes the calculation to me very wonky very confusing and ever since i
stopped escrowing it is easier to look at this and say okay i'm going to apply an extra 200
a month 500 a month whatever i can afford and i can actually see the figures update a little bit
easier and a little bit more realistic and it just makes it easier from the calculation perspective
so with the cons and the pro that we talked about how do you get out of this mess you
know you might be sitting here i don't wanna i don't wanna escrow anymore how do i get out of
this well there's a couple ways so first of all i found the best way to get out of the escrow
account for a lot of people is to refinance and if you refinance typically not with a big bank
recently i just refinanced with churchill mortgage they give you the option when they kill a bunch of
trees with all the paperwork you've got to sign to op down of escrow in your account so i would
recommend doing it that way it also looks at how much equity you have in your house so typically
if you're a new home buyer and you don't put down at least 20 percent the mortgage company
will typically decline your request and they'll say no no no you have to escrow there's no other
option and that's because you have less than a 20 down payment the the reason they do that is a
lot of times new home buyers they get in here they maybe not budget correctly and they've had issues
where if they allow you to pay your own property tax if you don't the the county or the state can
actually put a lien on your house and then if you foreclose on the house they get paid first
before the mortgagor and of course the mortgage wants their money they don't want to give it to
the state and local government so they're going to say no no get get it together get it with us
and we'll sort it all out and that's just something that you got to keep in mind if you want
to get out of it right away from your very first home purchase get away to get 20 down or more so
that you can have a little bit more power to say i don't want to escrow but if you've been in your
house for a little while you have some loan to value you have some equity build up and your
mortgage has been paid down a little bit it might be the time to call and say hey current bank what
do you think if i stop escrowing they may laugh in your face and in which case you say okay fine
and then look into if refinancing may be a better option based on interest rates and the costs
associated with refinancing and then at that point you'll have a little bit more power during the
refinance to say hey i will only refinance if you let me not escrow my property tax and insurance
i want to pay it on my own and that way you can take all that money and put it towards the savings
account that we talked about earlier so that's it do you have any questions maybe something i
didn't mention in today's video drop me a comment down below let's talk about it and i'll be sure
to help you or point you in the right direction but other than that guys as always continue to
live your sweet life because you're worth it have an awesome day and we'll see you next time [end]