Find out why your mortgage can be in more trouble than what you initially thought it would be.
One of the benefits of an escrow account is that borrowers are assured of paying for additional expenses in their home loan such as insurance and prepaid real estate taxes. An escrow account in the mortgage market is a savings account that is held by the lender after the borrower deposits a specified amount into the account. Generally, the legal contract allows the two parties to eliminate disagreements that may arise from the failure to be in good faith with the contract. Lawyers mostly perform the services of an escrow agent. They administer the release of the fund to the seller or its return to the buyer.
But not all escrow arrangements can make your home buying an easy trip to the market. In fact, escrow scams are common in the country. For example, the Originator Times reports that last year, a lawyer was accused of misappropriating $3 million worth of client funds that he held in escrow. It was supposed to be for the satisfaction of pre-existing mortgages but instead, it went straight to the lawyer’s pockets.
There are also many cases where the release of an escrow property is delayed because the agent can’t facilitate the account’s proper management. Some complaints are due to bounced checks and worse, a few agents do not show up when the release of the account is already set.
Some critics against escrow accounts argue that mortgage companies that keep the mortgage account actually earn interest from it. This is mostly the reason why they can still earn even in an economic crisis. Though the interest may still be low, those with higher property taxes and insurance to pay will certainly have higher opportunity cost at stake. In other words, if you just know how to set aside for your future payments, you could do something with the money before the insurance is due for another six months and in the end, earn the interest for yourself.
But not all can get away with an escrow account. First time homebuyers are usually required to set up one. However, if you can skip it, always keep in mind that the only solution is to budget your tax and insurance payments every month so that when your bills arrive, you’d have no worry about losing your house.