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Mortgages > Purchase

What is an Escrow Waiver?
What is an escrow waiver and what does it mean to me? A mortgage escrow waiver is available on most mortgage options.  Depending upon what type of mortgage product you receive may depend upon if you have to set up escrows or not.  A mortgage escrow waiver is a form that is filled out to allow you to pay the taxes and insurance for your home you are financing or purchasing. 

Why do they charge me to waive escrows?
A bank or mortgage lender will allow you to waive escrows on some loans, but they will typically charge you a .25% of a point to set them up.  If you do the math it could cost you a lot of money, or will it?  The concept of charging for something that you are going to do on your own seems a little backwards, and I agree.  If you think about a lender and how some of their income streams work, they are loosing out when you don’t set up escrows.  A lender will make money off of your money when you set up escrows.  Depending upon when your taxes and insurance are due the lender collects from you each month a fraction (1/12) of your taxes and insurance and while this money sits in the lenders accounts they are collecting interest each month for that money (a lot of money), and you are not seeing anything for it. 

In general the lender has basically set up an option for you to pay them on your own, but they are going to charge you to do it.  Do the math, if it makes sense for you to pay the taxes and insurance on your own than go ahead, but there’s a fee for it. 

Waiving Escrows is a good idea for budgeting purposes.  If you are like most Americans and would rather keep the money yourself until you have to pay them, be aware a large bill is coming and you better of saved or invested the money wisely.  If you do simple math with me take a $300,000 mortgage with estimated taxes and insurance of $5,000 combined.  If you pay a mortgage lender .25% of a point (a one time fee) to waive escrows that’s $750.00.  Could you be wise and make 10% return on your investment every year?  At 10% interest on $5,000 that would be $500 per year in your pocket, thus beating the system in less than two years.  Think about it and do what’s best for you.

Some loan options don’t give you the options to waive escrows.  Typically if you have 20% or greater equity in the home you are purchasing or refinancing you may have the option to waive escrows and pay them on your own.  In reverse if you don’t have 20% or greater equity than you don’t have the option to waive escrows.  The lender will have final decision if you can waive escrows or not.

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The tips on this website should be considered food for thought only. Lendingtips.com is a clearinghouse of ideas, not a professional adviser. Before any important decision, please consult the appropriate professionals (lawyer, accountant, real estate agency, broker etc.).

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