We've gone both routes when it comes to having an escrow account for our home's property taxes and insurance. With our first home, we had the bank handle this aspect of our home finances by adding a set amount each month to our regular mortgage payments. We ended up buying our second home outright, eliminating the mortgage escrow account from our lives.
These experiences have allowed us to see that there are both good aspects and bad when it comes to escrow account. They can be double-edged swords so to speak.
I have to admit, it was kind of nice not having to deal with setting money aside for paying property taxes and insurance. Having a set amount affixed to our monthly mortgage payment, and then leaving it to the bank to make the payments for these costs certainly took some of the weight of the job off our shoulders. But in a way, while this lack of responsibility was nice, it was also kind of a negative aspect of the escrow account since we weren't seeing these amounts as totals as they left our coffers. Sure, we got our bi-annual property tax and annual home insurance bills, and saw what we were billed, but actually having to write out checks for the full amounts of these costs rather than seeing them flit away bit by bit, seems to have a greater impact.
I have to say, considering an escrow account as worry free didn't really work for us. Yes, it was nice knowing that the bank was responsible for making our property tax and insurance payments, but we were still the parties who were overall responsible for ensuring these payments were received and credited to the correct accounts. Therefore, while it did take some of the worry off our shoulders about the checks making it through the mail and to the correct parities, we still checked our accounts to ensure that proper payment was received as we didn't want late fees to be assessed to us for something we really had no control over.
Hold Time and Amounts
In a way, it didn't matter to us too much that the bank was the one holding our money in escrow over months at a time as they waited for our related expenses to arrive since we really wouldn't have done anything with the money anyway. With all debt but our mortgage paid off, we wouldn't have used it to pay down higher interest debt in the months proceeding paying things like our property taxes or insurance. And since interest on savings was virtually nothing, it wasn't like we were losing out on earning money on this cash in the meantime. However, had we credit card or other high interest debt to pay upon, or needed the cash for other expenses, it might have been nice to temporarily have the money that was going into our escrow account to put toward these costs in the interim.
It seemed like we were constantly going through the "Goldilocks" effect with our escrow account. The bank was either way too high in their estimated withdrawals for our taxes and insurance or way too low. This meant that one year we would get a big refund and the next year we'd have to write a big check. I could have managed the situation much better myself, but to get out of our escrow agreement we would have had to pay a substantial fee, and it wasn't worth the money it would have cost us just to more efficiently manage this aspect of our personal finances.
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