Geez, I promised a post on impound free mortgages and never delivered! An impound free mortgage is where you DO NOT escrow your taxes every month with your mortgage company. With the crackdown on lending practices, these may be more difficult to get, but here's how it works:
Instead of adding 1/12th of your yearly taxes to your monthly payment to your mortgage company, and having them pay the tax bills out of the money they've collected, YOU will be responsible for paying the tax bills as they come due.
What are some advantages?
- Your money earns interest for you. It does not earn interest when you pay it to the mortgage company every month.
- You have some flexibility with your monthly payment. This can benefit you if you have a commission based business, or get yearly bonuses. Put away a chunk of it at a time, let the money earn interest all year until the tax bill is due, and reduce your monthly payment.
You absolutely MUST be vigilant in saving your money to pay your taxes. There is no forced savings plan (a benefit of paying it with your mortgage). So, if you have even the slightest doubt about your ability to save the money in order to have it on hand at tax time, I would advise against this.
Nothing like a $6,000 tax bill, and no money to pay for it, to ruin your day.
Want more information? Shoot me an email and I'll be happy to better explain tax escrows as they relate to your mortgage payment!
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Right on point. I think most people are more comfortable with escrowing taxes because they aren't so good at saving/budgeting. But it is a lot better to keep your money in your own pocket...especially when tax bills can be $6000 or more (around here it's common for $9000 - $20000). Yikes!
Banks will make you escrow your taxes if you are over an 80% loan to value, but if you have a lot of equity in your home, and are able to pay your large tax bill comfortably, keeping your moneyas long as you can is the way to go!
Jason and Michael - I realized it was 80% LTV after writing the post. That's really the golden ticket, isn't it? PMI goes bye-bye, you get to hold onto your tax escrows. Hmmm, maybe a post on the numerous ways to get to 80% LTV is brewing...
Thanks for stopping by!
Heather, I would much rather keep the money in one of my accounts earning me interest instead of giving it to the lender for them to hold onto! That's what I'm doing now and I wouldn't change it.
It's not for everyone (as previous comments noted some lenders require escrow depending on loan to value ratio) and it does take discipline to make sure the money's there when due but I've had escrow accounts and always felt I was giving up control of money I could have set aside myself and had working for me till it's needed.