Tuesday, November 21, 2006

A Well-Managed Escrow Account is A Beautiful Thing

A Well-Managed Escrow Account is A Beautiful Thing

I got an email from CitiMortgage this morning notifying me that "On 11/20/2006, tax activity occurred on your mortgage escrow account."

While we got our mortgage in 2003 from locally-owned Pulaski Bank, they sold it almost immediately to Principal Residential Mortgage. Then in 2004, Citigroup bought out PRMI. Ironically, that brought our loan servicing back to the metro St. Louis area, since of course CitiMortgage has a major processing facility in O'Fallon MO.

Some people say you should just pay your real estate taxes and homeowners insurance on your own, and invest the money rather than giving the money to your bank to hold and pay those bills for you. Sorry, I'm just not that disciplined. And realistically, how much return-on-investment can you possibly make on $1,500 per year? If you forget and pay the taxes late, the penalty fees will eat that up immediately.

Just as with payroll tax withholdiing, I think escrow accounts are a necessary inconvenience. But you also have to consider they can increase annually by a substantial amount. We have a 30-year fixed rate conventional loan (we paid 20% down), so our principal + interest will never increase and we don't pay PMI. But that escrow part is one that can increase substantially based on the projected costs of taxes and insurance.

Our taxes went up about 15% between 2004 and 2005 due to reassessment, which I thought was fair. The increase was less than 1% (not even $5) this year, since there was no reassessment this year.

Homeowners' insurance is another story. With no claims, it goes up 10% every year. I hate to think what would happen if we had a claim. And that payment is one that we sure couldn't handle on our own, since it's about double the tax payment, but also happens to be due about the same time as Federal and State income taxes. (We bought our house in April.)

While I have some minor quibbles, the CitiMortgage online payment system works beautifully. Although I didn't choose to use CitiMortgage, I'm generally satisfied so far.


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