Question about mortgage escrow adjustment

[disneysteve]

I got the escrow statement for our mortgage. As usual, there is a shortage in the account and it needs to be paid. I have the option of paying a lump sum of $512.08 now or paying out the exact same amount over the next 12 months. Is there any possible reason to pay it upfront? There is no interest or penalty to pay it out so I can't think of any reason that wouldn't be to my advantage. Just figured I'd make sure I wasn't missing anything.

[bjl584]

If I stretch my payments out over the course of the year it ends up costing an extra $30 or so. That's my incentive to pay it up front. That's strange that there is no "penalty" for not paying the full amount up front.

I would probably just pay it and be done with it.

[disneysteve]

Originally Posted by bjl584

If I stretch my payments out over the course of the year it ends up costing an extra $30 or so. That's my incentive to pay it up front. That's strange that there is no "penalty" for not paying the full amount up front.

I'll double check and make sure I did the math correctly. I just ran the numbers quickly last night. If there truly is no penalty, I'd rather stretch it out over the year. If there is a penalty, then I'll pay it up front.

[kork13]

I've had a similar situation... I was over-paid for a 9-month long TDY (call it a "business trip") by about $5500 -- they finally straightened it out 3 months after I got back. I got the option to pay it all upfront (**GULP**) or to stretch it out over 12 months with no interest/penalty. I did the 12 payments, and actually just finished paying it back this month. It's a pain in the butt to constantly see the money go every month, but in my head I know it's better than having paid back the full amount upfront.

That said, for only $512, I might be tempted to just pay it all at once just to be done with it.

[creditcardfree]

Why not handle your own escrow? You can hold that money, up until your property tax or homeowner's insurance needs to be paid, making a little interest. Generally, you are allowed to do this if you have more than 20% equity, which I'm sure you have Steve.

[disneysteve]

Originally Posted by creditcardfree

Why not handle your own escrow?

This is one of those things that I've just never bothered to do. Maybe if I was missing out on 4 or 5% interest, I would have done so, but our checking account earns 0% and our savings not much more so it is just easier to make one payment and be done. At this point, we're hopefully only 6 years or so from repaying the loan so I'm not going to bother switching it over.

[bjl584]

Originally Posted by disneysteve

This is one of those things that I've just never bothered to do. Maybe if I was missing out on 4 or 5% interest, I would have done so, but our checking account earns 0% and our savings not much more so it is just easier to make one payment and be done. At this point, we're hopefully only 6 years or so from repaying the loan so I'm not going to bother switching it over.

I do my own. Probably because I don't trust my lender to handle it properly. I just feel better writing the check myself and sending it directly to the county.

[dfeucht]

There should be no penalty for that. There really isn't a shortage is there? Usually there just happens to be a month or two where it is less than the mortgage companies "minimum balance" which is one or two months of escrow payments. Either way there shouldn't be a penalty for stretching it out.

[greenskeeper]

It comes down to whether you want to keep the same monthly payment by paying the shortage or have your payment go up by the shortage/12.

I always put the shortage into the monthly payment, because as you said sooner than later it will be short again.

There are no penalties.

Most mortgage companies require you to set up an escrow with them, unless you have a HELOC as the only "note" on the property.

[MonkeyMama]

Originally Posted by greenskeeper

Most mortgage companies require you to set up an escrow with them, unless you have a HELOC as the only "note" on the property.

I'd disagree with this - I have had several mortgage with several companies and have never had any problem opting out of escrow.

The reason I don't use mortgage escrow is all the mistakes they tend to make. IT can really be a nightmare when your mortgage company forgets to pay your insurance or property taxes - then you have to clean up the mess. I like being responsible for my own bills, personally.

[LivingAlmostLarge]

I refi again this summer and escrow was required to get the better rate. Our first mortgage in 2005 we didn't escrow but then now mortgage companies make money off the escrow especially since i had to prepay a month or two buffer.