How Much Do You Save By Not Escrowing
Personal Finance
I don’t escrow my taxes / home owners because I would rather save the money myself in a high interest bearing account rather than letting my mortgage company do the same. I am a disciplined saver and know what the bills are going to be, when they are due, and how much I need to save every month to meet those.
So my school tax bill came in this week to the tune of $3,717.44 so I thought to myself, you should figure out how much you are actually making for your effort. Let’s assume for arguments sake the mortgage company makes my additional payment 1/12 of this amount every month (though usually it’s higher by about 10%) – so $309.79.
If it put $309.79 a month in for a year at the current rate of 5.05% APY, through the power of compounding interesting the total amount I will have in the account will be $3804.74. So basically I gained $87.30 by holding onto the money myself.
I guess that might not seem like a lot for the hassle of now having to worry about paying your own bills, but over the life of a 30 year mortgage, if I take that extra money and get 5.05% APY on it it equals about $6115.17. Quite a hefty sum, and that isn’t even including my home owners insurance or property taxes.
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I actually take the opposite approach. I am totally cheap and try to save as much as possible but I watch the time/stress factor as well. I currently have 2 properties (1 primary and 1 investment – I just sold another investment prop. ). I escrow both and probably spend, as you say, $160 doing so. However, it is one less thing to worry about and for $14/month, I accept that as a cost of doing business. If I had no investment property, I may feel differently. Also, if I handled the money at home, I may feel differently. I passed that duty to my wife last year because I simply ran out of time to do it.
That is $80 you wouldn’t have. I am a firm believer that you watch the pennies and the dollars take care of themself.
We actually have a customer, who is very financially well off. He is a tight a$$. He will consistently hold our invoices for 60-90 days saying he is waiting for a cd to come up instead of cashing it sooner and paying. This is another trick of the rich. They begin to not worry and catch their pennies everywhere.