Why Do We Manage Our Own Escrow Account?
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For over the past 5+ years, my wife and I have been managing the escrow account for our home. The first couple years of owning our home, we made the lazy choice of letting our mortgage lender manage our escrow funds.
At first, we didn’t mind paying an extra $300+ dollars a month to help fund our escrow. Those funds were rolled up nicely into our monthly mortgage payment and it just made writing a check to our lender that much easier. It kept us honest and made sure at the end of the year we had enough funds to pay for our property taxes and homeowners insurance.
But after awhile, it seemed like every 6 months or so (can’t remember the frequency) … our mortgage lender would raise our escrow. At one point, I remember the monthly escrow bill jumping to over $425!
Our lender was basically trying to estimate how much we would need per month to cover property taxes and insurance … and so they would adjust for potential shortfalls.
And that is when I had my Ah-ha moment.
I remember the last year we let our lender manage our escrow, we finished the year with a couple hundred dollar credit. That just didn’t seem right. We overpaid our escrow that year with post tax dollars … and let the mortgage company leverage our money.
So we decided to take control of these funds and manage our escrow on our own.
How We Manage our Escrow
For simplicity … I estimated we needed $5,000 per year to cover our property taxes and homeowner’s insurance. It is actually closer to $4,750 but I like to over budget just to make sure. And since we are controlling these funds (not the bank), I am okay with this buffer.
Property taxes are due September 30th each year … but we are allowed a 3 month window to pay them without any penalty. Since I want to control these funds for as long as possible, we purposely pay them the last week of December (and by credit card). This year they will run just under $3,900.
Our homeowner’s insurance is due the first week of February and we also pay this by credit card. Insurance will run just under $900 this year.
Since we are budgeting $5,000 a year … we make it simple and transfer $415 each month (after getting paid) into a special online checking account. That money sits in the checking account under our control until it needs to be used to pay our bills.
Even though there is a bit of work to get the system setup … managing our escrow has had plenty of advantages. Personally, I would rather manage $5,000 in funds then just turn it back over to our bank.
Here are 3 advantages to managing your own escrow account.
1. We Make Money from Our Money – Not the Bank
There is something I just don’t like about handing our post tax dollars over to a bank (in this case our mortgage lender) … so they can earn income from it. Sure … $5,000 isn’t a ginormous amount of money, but it is still our money.
Our online checking account setup for managing escrow currently earns us 0.75% interest. Not a lot, but that is $37.50 of potential income earned from interest (on that $5,000). And that is money we are earning back … not the bank.
I am sure if we really wanted to hack this … we could squeeze more income out of that $5,000 somehow.
2. Not Over-funding Our Escrow
When we let our mortgage lender manage our escrow … we often were over-funding our account. So each month, we would be putting in an extra $10, $25, $50 (or whatever it was) to fund our escrow.
I don’t like handing over our escrow money to a bank to earn money from it. I REALLY don’t like handing over extra money for the same reason.
It is important to point out that we didn’t loose this money … but we lost control of using it to earn more income.
Paying $300 extra a year in escrow ($25 a month) could be earning us $9 extra in dividend income a year from a stock yielding 3%.
3. Travel Rewards
So I saved the best for last. The first 2 reasons I listed are more icing on the cake. But one of the biggest benefits of managing your own escrow account is the potential to earn travel rewards.
Since we are just getting started on building our travel rewards portfolio, I am actually very excited about paying our property taxes and insurance this year. The past 5 years we have been earning about 1% back … which is still good … by paying for these with our Discover Card. That is an extra $37.50 (or so) per year in cash back.
But earning travel rewards has SO MUCH MORE potential. For example, my wife recently opened up the Chase Sapphire Preferred® card in her name (opened in November). That specific card currently comes with a 50,000 point bonus for spending $4,000 in the first 3 months.
By opening the card in November, we can first pay for our property taxes (around $3,900) in late December. And then turn around in late January and pay our homeowner’s insurance (around $900). That is around $4,800 worth of spend that will cover our minimum of $4,000 in 3 months.
Not only can we collect those 50,000 points from hitting the minimum spend, we will also earn around 4,800 points for our charges … which brings our total points up to 54,800!
At a minimum, that is $548 if those points were redeemed for cash at $.01 per point. Those points are probably closer to $700+ worth of FREE TRAVEL!
If you are interested in learning more about how we are building our portfolio of points for FREE travel, checking out our Travel Rewards page.
Should You Mange Your Escrow?
I think every situation is probably different … so managing your own escrow account may not be for everyone. In fact, it may not even be possible for everyone. It will likely depend on your mortgage lender and who you pay your taxes to.
In our situation, taking over the management of our escrow was simple and did not cost anything. Make sure to check with your mortgage lender if it is possible to start managing your escrow and if there are any fee’s.
Another thing to check on for earning travel rewards, is to see if you can pay your property taxes with a credit card. We pay our taxes to the county and they have the option to charge them to our credit card. There is a small transaction fee (less than $10), but the rewards we earn more than make up for this small cost. We have actually been charging our taxes ever since taking over managing our escrow.
We also can easily pay our homeowners insurance with a credit card (and our car insurance) at no extra cost.
Of course, if we didn’t own a home … then we wouldn’t have to worry about paying our property taxes. But I feel by managing our escrow account, we are optimizing an expense that we will always be paying as a homeowner.
Do you manage your own escrow account? What sort of life hacks can you add that you have tried from stretching your escrow dollars?