Escrow Shortage: Pay all at once or throughout the year?

January 30, 2013 12:04 PM

It's January, which means my mortgage servicer (Wells Fargo) has once again determined my escrow account is short by about $300. This seems legit since there was a recent property tax increase. Outside of personal preference, is it better for me to pay this all at once, or to spread it out over the year? Is it better for Wells Fargo if I do one or the other? Context: It's probably my tinfoil lined hat, but whenever a bank gives me a choice like this I assume one of the choices will screw me out of a little money, put me in a position to be screwed out of a little money, or put them in a position to make a little more money off of me.
posted by alana to Work & Money (6 answers total)

Best answer: If they aren't charging you interest on the shortage, it's best to defer paying as long as possible (in other words, spread it out over the year). With savings account interest rates being so low, though, just do what's most convenient. 1% interest on $150 is $1.50.
posted by payoto at 12:17 PM on January 30, 2013

Best answer: Find out if they are charging you interest if you pay it back over time. If there's no interest or other fee for doing that, you may as well spread it out. But read the fine print -- there's probably a 'convenience fee' of some sort, otherwise there's not much reason for them to offer the option.

But in general, if you are an organized person, the best thing to do is to not do escrow with them at all. Just stash that money away each month in a savings account of your own, and pay the tax bill yourself when it comes due. Then at least you'll earn a little interest on it throughout the year.

There's no real requirement for you to set up escrow through your bank, as long as you continue to pay your tax bills.
posted by spilon at 12:19 PM on January 30, 2013

Best answer: Building on spilon's comment: call them up and say you'd like to cover your taxes/insurance on your own, please cancel the escrow and return the monies to you.

Then, make sure your insurance and local tax bills are sent to you, and pay them on time.

There are fed guidelines on calculating how much they have to keep in the account, thus you get a yearly P/L-like statement showing what went in, what went out, and estimated needs for the coming year.

We did this, and while you have to remember to SAVE THE MONEY (that tax bill is like 2 additional mortgage payments, insurance about half-a-payment), and deal with the hassle, it means you aren't giving the bank a free loan.
posted by k5.user at 12:22 PM on January 30, 2013

Response by poster: I'll use that $1.50 to tip the bartender for the drink I have to toast the downfall of the American bank. Thanks all!
posted by alana at 12:42 PM on January 30, 2013

The rules on whether you are subject to an escrow vary by state. When I found out that I was exempt a few years ago, I engaged in the following correspondence:

Me to bank: "By state law, I am not required to have an escrow account. Please close it."
Bank to me: "Thank you for your inquiry. Under our policies, we will maintain your escrow account."
Me to bank: "Your policies violate state law. Please give me my money."
Bank to me: "Per your request, here is your money."

On the other hand, given the low interest rates today, it doesn't really matter. I paid one property tax bill late and the (small) penalty more than wiped out any earnings I made on the escrow money.
posted by Mr.Know-it-some at 12:51 PM on January 30, 2013 [1 favorite]

My mortgage company US Bank, charges a fee to cancel escrow, which may be the case for Wells Fargo.
posted by sandmanwv at 3:54 PM on January 30, 2013