Should i opt out of escrow with wachovia? (loan officer, interest rate, 401k)

[marykate1]

Hi,

I am currently going through a loan process with wachovia bank. My LTV is lower than 80 % so they are enforcing an escrow account on my loan. I am afraid that they will start adding up their own fees when its time for me to pay my mortgage payment with ins + tax.

They are offering an opt out of 500 dollars and .25 charge.
Shall I take it or should I rely on them that they will not charge me extra fees?

[SilverWings]

Originally Posted by marykate1

Hi,

I am currently going through a loan process with wachovia bank. My LTV is lower than 80 % so they are enforcing an escrow account on my loan. I am afraid that they will start adding up their own fees when its time for me to pay my mortgage payment with ins + tax.

They are offering an opt out of 500 dollars and .25 charge.
Shall I take it or should I rely on them that they will not charge me extra fees?

All things being equal, I would say not to escrow - since you're pre-paying next year's insurance someone else is making money off your balance rather than you. (better to stick the same amount in an interest bearing savings account each month than pay Wachovia to do the same thing) However, given they're charging your an extra .25 (assume on your rate?) and $500, it would cost you more than the lost interest you'd get. By a lot, I'm thinking.

A decent mortgage company should not charge fees to handle your escrow - as i said, just holding the escrow by itself it makes them money. But you will have to pay in an extra "cushion" which is required by law (some %, I forget how much), so your initial out of pocket is higher. It's a raw deal if you ask me, but the lesser of two evils in your case seems to be to allow them to handle the escrow. On the plus side, you don't have to worry about actually paying the tax bill since they'll do that for you.

Good luck!

[MissDaisy]

Originally Posted by marykate1

Hi,

I am currently going through a loan process with wachovia bank. My LTV is lower than 80 % so they are enforcing an escrow account on my loan. I am afraid that they will start adding up their own fees when its time for me to pay my mortgage payment with ins + tax.

They are offering an opt out of 500 dollars and .25 charge.
Shall I take it or should I rely on them that they will not charge me extra fees?

Impound escrow accounts do not have service charges. At the time of escrow signing for your home purchase, part of the closing costs are the straight math calculation for monthly property tax and insurance costs.
For example, if your annual property taxes are $5000.00, that would be
$416.66. Depending on the lender, you typically pay upfront at closing
3 or 6 months ($1250.00 / $2500.00) and the same with your homeowners insurance, though that is typically 6 or 12 months premium.

The reason lenders have you pay the above at closing, is so that when the tax and insurance bills come in, there is sufficient funds for payment.

If, for instance, at the end of the year, it is determined that the lender is collecting too much money, then they (required by Federal law) refund you the excess, and adjust your monthly payment down accordingly. If it is determined that they have been collecting too little, the lender will send you a notice that gives you the option of paying the shortage upfront, or adding it to the next 12 payments. The accounts are monitored and adjusted annually.

When I bought my first home is 1991, as a first time buyer like yourself, I did not elect to have impounds. This actually complicated by life and budget, since getting a BIG bill never came at a good time, even though it came at the same time of the year, every year. At one point in 1995, I was actually behind and had to make it up...not fun...

That being said, we now have all property taxes and insurance impounded.
It is part of our monthly budget, no lump sums due at inopportune times, and
the lender fires off a check at the appropriate time, so no late fees, etc.

The financially PRUDENT thing to do is to have the impounds. Taxes and insurance are a real, unavoidable cost of homeownership. If you for whatever reason, are financially unprepared to pay them out of pocket, now or in the future, and they fall into arrears...

1) The county can inforce a lien on your property. If that does not get your attention and make you pay up...the county can sieze the property and sell it to recover it's taxes

2) If you do not pay your monthly insurance premiums , and your insurance is cancelled, the lender will purchase minimum collateral (not liability) insurance
at a hideously outrageous price, and tack it onto your monthly mortgage payment, whether you like it or not...


In fact, with the whole subprime mortgage meltdown that is currently affecting all of us, there is legislation on the table to require impounds on certain or all mortgages, since this is yet another foreclosure risk.

[renriq02]

Mortgage lenders are not allowed to make money on your escrow account without informing you when you sign the loan documents.

I have never seen them declare that they plan to make any money off of it. It's supposed to be in a nonbearing interest account.

I have a escrow so it's easier for me to manage.

[VictorBurek]

Lenders cannot make money with your escrow account, so the money in that account just sits there til the lender pays your taxes and insurance. As in life, there are always 2 sides. It is better not to escrow, why let the lender hold onto your money when you could be placing that money into your savings account which is paying you money. I advise my clients(i am a Certified Mortgage Planner) to open a savings account with hsbcdirect.com, this is a fdic insured bank, no monthly fees, minimum to open an account is $1.00 and this is a liquid savings account meaning you can add to it or withdraw from it at any time with no costs. They are currently paying 3.5% which is higher then most CD's that tie up your money for a period of time. (I am new to this board so i hope i can name that bank, i dont work for them but i do have my emergency savings with them) Now the flip side of this is that at the end of the year you will get a tax bill, if you did not properly save the money it might very well ruin your Christmas holidays. So, if you are good with your money, why escrow, hold onto your own money and earn interest with it. Another benefit of not setting up escrows is to avoid a shortage. Your escrow account will be set up based on what your taxes and insurance is right now but as everyone knows, the government will find a way to increase your taxes. So, lets say your taxes are $4800 a year, your current tax escrow will be $400. Now, lets say next year your taxes go to $5400 which is $450. Your current payment will not change, but your escrow account will eventually have a deficit because you would be adding $400 each month to it but you should be adding $450. Your lender will go ahead and pay your taxes even though there is not enough money in your account. You will then get a letter from them stating that they need to increase your payment to make up for the deficit and increase even more to account for the higher taxes. This is very common on new builds as the escrow for taxes is usually set up based on the taxes for just the land, but now there is a house on the land and the taxes will increase. So, escrowing is much easier, but no esrow account is better for you financially.

[brokerdave]

please take miss daisy's advice and ESCROW if you no experience with this.

[VictorBurek]

I will have to disagree with a little of what Miss daisy said, no disrespect. she said the prudent thing to do is escrow, because if you fall behind and do not pay you can lose your home or have insurance forced upon you and she is correct. but if you use that thought process then the prudent thing to do would be to rent and not buy. If you fall behind on your mortgage payment you could lose your home. The original poster asked basically what is better and no escrow is better for what i highlighted in my above post. To further clarify how they set up your escrow account. When you purchase a new home, the lender will require that you pay 1 years insurance up front then to set up escrow account, they will collect 3 months insurance. The reason they collect 3 months is if you close in lets say June, your first payment is in August. That means your August payment included 1 month insurance, then another month with each payment. The 3 months they collect would be 1 for June, since there was no payment made and the 2 other months collected is a reserve account. Depending on what month you close will determine how many months they collect for taxes. If we assume a June closing, so first payment August. the lender would collect taxes for Jan thru July and 2 months in reserve which in this case would be 9 months. I hope this helps.

[brokerdave]

i dont care what you say. she should absolutely escrow. she doesnt even really understand what the escrow is or didnt at least. and you have a lot of faith in her just being able to remember to have the money put aside for november 1st. and nobody has mentioned the 4% discount for paying november 1st. i bet she didnt know that either. which would be guarenteed if it was escrowed.

people are busy these days. not everyone needs to mirco manage their penny's. and while the interest bearing account is a nice idea. you get taxed on that 3.5% and with inflation it actually costs you money to earn that money. thats why savings accounts arent used by investors.

[VictorBurek]

Wow, calm down brokerdave. I am just letting the poster know what is better financially. They can make up there own minds. Part of being an advisor to a client is to let them know the benefits and drawbacks of what they are deciding. Maybe this poster is very smart with there money, maybe they have no debt, a emergency fund and already building up 401k. But if you read my post i did clearly state that if they are not the type of person that can put money to the side then they should escrow. You say you dont care what I say and you seemed to say that everyone should escrow. You also say that investors dont use savings accounts, you are correct. they dont use savings accounts for longer term investments but they do use savings accounts for emergency funds. I have many clients, alot of whom are savvy investors and i will tell you those clients hardly ever escrow. If you are too busy and dont want to micro manage your funds, escrow. But making a blanket statement that all should escrow i think is inappropriate. Maybe we can agree to disagree on the subject.

[hoopingkld]

Hello,

Can anyone help me with opting out option of mortgage when refinancing?
The loan officer told me that we can't opt out of escrow unless we pay a higher interest rate than what she quote us.

Where can i find the information? I appreciate your helps on this a lot