Should I Escrow Taxes and Insurance?

Should I Escrow Taxes and Insurance?


This is a question that can come up during the process of refinancing or purchasing a home for the first time. It is a question that you want to think about before making a decision. This decision can be changed if you decide later to escrow or not escrow. Homeowners Consult has broken down some of the Pro’s and Con’s of Escrowing your Real Estate Taxes and Insurance.

What is an Escrow Account?

An Escrow account is an account within your bank or lender that is set aside for your Real Estate Taxes and  Homeowners Insurance. Part of your monthly payment that is allocated towards Taxes and Insurance go into this account. Many times Taxes and Homeowners Insurance are paid throughout the year. This account will distribute the funds in the account to pay the taxes and insurance in your behalf.

Why Should I Escrow?

Escrowing your Taxes and Insurance make it easy to stay on top of. Rather than having to come up with sometimes a large amount of money for your Real Estate Taxes and Homeowners Insurance premiums. Escrowing the taxes and insurance ensure that they will be paid on time since the responsibility is now on the bank or lender. Your bank or lender will make sure they are paid on time.

Do I have to Escrow?

Some Loan Types such as an FHA (Federal Housing Administration) require that you Escrow your taxes and insurance. You also might be required to escrow taxes and insurance on Conventional Loans as well. Banks and Lenders could have overlays that require the client to escrow. Escrow accounts are free. There should not be a charge to you to escrow your taxes and insurance. This is a service that most banks provide. Also if your mortgage has Flood Insurance and Mortgage Insurance, these would also be required to be escrowed in some cases.

Still Not Sure if Escrowing is for You?

No worries. An escrow account may be set up at any time. If you decide to change your mind in the future and escrow taxes and insurance, this can be set up with your bank or lender. The best time to set this up is when you are in the process of refinancing. This is because the bank or lender is already working on your loan and they can easily set this up during the process. You have a choice to not escrow as long as the loan type does not require it.

In conclusion, escrowing taxes and insurance can make it easier to manage your finances since you will know how much per month will be paid towards those expenses. Taxes and Insurance can go up over time, this would cause your monthly payment t potentially increase since there would need to be enough money in the account to payout. Either way though, if the taxes and insurance go up, whether these premiums are escrowed they would still have to be paid. It basically comes down to whether you would want to pay them monthly or have it paid out of your own personal account during the year. Unless the loan type that you have requires the escrow.

If you have any questions, please feel free to reach out to the HC team. We will answer the questions that you have or find someone that can.


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