An escrow reserve account is used to collect and “reserve” the real estate taxes and home owners insurance portion of your monthly mortgage payment for when your taxes and insurance bills are due. In Washington state, property taxes are paid twice a year and home owners insurance is paid annually.
If you have enough equity (80% loan to value or lower), a lender may permit a home owner to pay taxes and insurance are their own and not have them included in their monthly mortgage payment. Lenders typically charge 0.25% in fee if a home owner elects to do this. On a $400,000 loan amount, this is a cost of $1000. This fee is often priced into the cost of the rate. It’s not unusual for a home owner to be unaware they paid this fee since it is most often already factored into the cost of the interest rate.
However there is a compromise of sorts. Did you know that many lenders will permit a home owner to pay their home owners insurance and not charge a 0.25% escrow waiver fee? This is possible when property taxes are still included in the monthly mortgage payment and the property has an 80% loan to value or lower.
If you are considering buying or refinancing your home located anywhere in Washington, I’m happy to help you.