Progress to Date

  • Original Loan Amount: $204,000.00
  • Balance at Beginning of 5-year Goal (1/1/08): $188,983.82 @ 6.00%
  • Balance at Refinance in February 2009: $148,000.00 @ 4.625%
  • Outstanding Balance: $0.00 (PAID IN FULL!!!)
  • Latest Payment Date: April 2011
  • Latest Additional Principal Amount: $17,623.22
  • Amount Ahead of Schedule (since refinance): $121,462
  • Time Ahead of Schedule (since refinance): 7 years 10 months
  • Interest Saved Last Month: $23,972.48
  • Total Interest Saved: $28,435.55 ($1,037.74 on original mortgage; $27,397.81 on current mortgage)
  • Months Remaining in 5-year Goal: 20
  • Average Monthly Principal Needed to Meet Goal: N/A (Goal achieved)
  • Progress List Explained

Wednesday, May 28, 2008

No Mo' Escrow

I was discussing our saving plan with a friend over the weekend. He asked if our monthly mortgage payments include a contribution to the escrow account (they do). He suggested that we might be able to remove the escrow portion from the monthly payment amount simply by calling up our lender and asking. This intrigued me, so I did just that. It turns out that since we aren't required to pay PMI, we can drop escrow at any time. The lender just keeps it there for our "convenience".

Last year we paid around $4,000 in property tax. If we can ensure that we have at least $4,000 saved at all time in a special tax reserve fund (and contribute to it monthly), we can earn interest on that money above and beyond the measly rate paid by our lender. Last year we earned about $29 in interest from the escrow balance. If we invest the $4,000 in a money market fund paying a conservative 2.00%, we could earn about $80 per year. This isn't a huge difference, but why leave free money on the table?

Also, each of the past two years we've received an escrow refund at the end of the year because our house's appraised value has fallen with the overall real estate market (and therefore our tax burden was lower than the projected amount). By taking the tax payments into our own hands, we can avoid waiting 12 months for any escrow refund payments to come through. I realize this would work in reverse if house prices were rising, but I don't see that happening in the next few years.

Finally, once we do achieve our goal and are 100% mortgage-free, we'll have to pay taxes on our own anyway. So setting up the tax payment fund now will give us plenty of practice when that day finally comes.

Because of these reasons, I asked the lender to stop including escrow amounts in our monthly payment. They are sending us a check for our current accrued escrow balance. Property taxes are due next month, so I'll be ready in time to make our first tax payment on our own.

3 comments:

ASHLEY said...

That sounds like a much better idea than the escrow account. Even if the interest you will earn isn't a whole lot more, it's still more! And I agree- doing it yourself will definitely be good practice for the tax paying that will come later.

The Executioner said...

I am definitely a Type A personality when it comes to money. I like to be in control. The elimination of the escrow account allows me to be more "hands on" with our finances.

SavingDiva said...

I agree with ashley that is sounds like a win-win situation!