topic Re: mortgage question in Community Chat

mortgage question

cookinfreak — Mon, 02 Aug 2021 18:20:17 GMT

Afternoon All!

I was just wondering about a house payment. Is it best to pay extra on the principle, the escrow or both?

TIA

cookin

Re: mortgage question

redwingsgal — Mon, 02 Aug 2021 18:21:00 GMT

Personally, I always pay more on the principle, but it is your choice.

Re: mortgage question

Kachina624 — Mon, 02 Aug 2021 18:22:29 GMT

Definitely principle.

Re: mortgage question

Lipstickdiva — Mon, 02 Aug 2021 18:30:06 GMT

Definitely the principle because in the long run you will pay less interest.

You are only allowed to have a certain amount of money in an escrow account. If your escrow account gets too high, the bank will refund the money to you. But I'm curious as to why you would want to put more into an escrow account?

Re: mortgage question

gidgetgh — Mon, 02 Aug 2021 18:46:09 GMT

Principal because that lowers the amount you pay interest on.

Re: mortgage question

kaydee50 — Mon, 02 Aug 2021 18:49:21 GMT

@cookinfreak I'm assuming the "escrow" account is for paying taxes?? We pay our taxes directly so I'm confused as to why you would want to put extra money there??? Definitely put money toward the principle which will pay off the mortgage faster.

Re: mortgage question

millieshops — Mon, 02 Aug 2021 18:53:56 GMT

@cookinfreak paying down the principal,is the only way you really gain financially. If you pay down the escrow and end up overpaying during the year, the extra will lower a bit what you have to pay next year, but that doesn't change the total amount you will,owe.

Pay on principal only and be sure to write on whatever you send with your mortgage that you are prepaying principal.

Re: mortgage question

Goodie2shoes — Mon, 02 Aug 2021 18:54:50 GMT

From prior responses, it looks like you have your answer and I agree with the others

Re: mortgage question

DrakesMomma — Mon, 02 Aug 2021 19:01:08 GMT

I agree, pay more to the principle. If we've had a local tax levy increase pass I will pay a little more to the escrow so we aren't hit with a big shortage bill at the end of the year.

Re: mortgage question

patbz — Mon, 02 Aug 2021 19:36:30 GMT

Definitely principal; I always pay extra to "principal only" and usually I am quickly several years ahead on payments because the earlier in a mortgage you pay extra towards principal the more valuable it is. Google Mortgage Professor and see for yourself! Many years ago I worked as a S&L teller ( under employed in sunny San Diego) and really learned a lot about how principal and interest works ( has saved us well over $100,000 in interest over the years). Another important point is that if you are paying PMI cancel it as soon as you have enough equity to do so.

Re: mortgage question

chrystaltree — Mon, 02 Aug 2021 19:37:41 GMT

The principal. Always.

Re: mortgage question

Catty2 — Mon, 02 Aug 2021 20:31:22 GMT

I try to pay extra towards the principle every month.

Re: mortgage question

JeanLouiseFinch — Mon, 02 Aug 2021 21:00:47 GMT

We were able to cut years off the term of our mortgage by paying extra toward the principle.

Re: mortgage question

VaBelle35 — Mon, 02 Aug 2021 21:08:32 GMT

Pre-pay the principle.

If you are concerned about an escrow account shortfall, which I always was because of the games our local government played with tax rates, value of the land, etc., I put money aside each month in the event of a shortfall. I used the average shortfall from the previous 3 years (it took me 3 years to realize it was going to be a thing and I needed to get ahead of it).

My escrow account in my last refinance with Capital One had my condo insurance premium in there as well, so I accounted for the rate increase for that as well in my little sinking fund.

Re: mortgage question

gertrudecloset — Mon, 02 Aug 2021 22:32:59 GMT

@cookinfreak wrote:
Afternoon All!
I was just wondering about a house payment. Is it best to pay extra on the principle, the escrow or both?
TIA
cookin

This is very personal and should be discussed with your spouse or your financial advisor. In theory, the more you add to the principal balance, the less interest you pay. You're paying off your house faster. This also depends on the loan type. Most home loans have no penalty for pre-payment of the loan. Talk to your financial advisor.

@cookinfreak

Re: mortgage question

Melzie — Tue, 03 Aug 2021 14:40:31 GMT

Principle

Re: mortgage question

JamandBread — Tue, 03 Aug 2021 15:16:05 GMT

I do not think banks will allow you to overpay your escrow. Bank- held mortgage escrow accounts are regulated by the federal government. You can not carry an overage because it must be refunded to you. You can pay on a shortage, either in a lump sum or by paying the shortfall in monthly chunks as part of your regular payment.

If you are concerned about an increase in your taxes and insurance, you could put a little aside each month on your own, just in case.

Re: mortgage question

Boehm Collector — Tue, 03 Aug 2021 15:29:37 GMT

Definitely towards the principal. That way you payoff your mortgage faster and save lots of money in interest.

Re: mortgage question

Mominohio — Tue, 03 Aug 2021 17:13:34 GMT

I don't mean to sound dumb here, but why do people have an escrow account with their mortgage?

I know back when I was really young, and had zero money, we had to have our taxes and maybe insurance rolled into our mortgage because we got a federal loan of some type for people with little money down, so I guess that was an escrow of some kind?? They collected a portion of the yearly amount for those things each month to ensure they were paid, then made the payments for us?? Is that how that works. I know at the time I was 'offended' as I always paid my bills, but it was the only way to get into a home loan with little money down, and we were young and poor.

So if I have that right, what an escrow is for, my next question would be, if you can get a conventional loan, why would you want an escrow? Why would a person not just prefer to pay their taxes/insurance on their own, not run through the lender? Our second home we had 20% down, and wanted to have all other expenses not included in the financing, if that makes sense. We pay our taxes and insurance on our own, not through the house payment monthly.

Is there some reason I don't know/understand why people actually WANT to put those through escrow accounts?

Thanks for helping educate me!

Re: mortgage question

scatcat — Tue, 03 Aug 2021 18:07:20 GMT

@Mominohio wrote:
I don't mean to sound dumb here, but why do people have an escrow account with their mortgage?

I know back when I was really young, and had zero money, we had to have our taxes and maybe insurance rolled into our mortgage because we got a federal loan of some type for people with little money down, so I guess that was an escrow of some kind?? They collected a portion of the yearly amount for those things each month to ensure they were paid, then made the payments for us?? Is that how that works. I know at the time I was 'offended' as I always paid my bills, but it was the only way to get into a home loan with little money down, and we were young and poor.

So if I have that right, what an escrow is for, my next question would be, if you can get a conventional loan, why would you want an escrow? Why would a person not just prefer to pay their taxes/insurance on their own, not run through the lender? Our second home we had 20% down, and wanted to have all other expenses not included in the financing, if that makes sense. We pay our taxes and insurance on our own, not through the house payment monthly.

Is there some reason I don't know/understand why people actually WANT to put those through escrow accounts?

Thanks for helping educate me!

@Mominohio

For us, it's personal choice. The bank doesn't charge a fee for paying your taxes or insurance. One less thing to worry about paying. Yes the lender may be holding a little extra $ in the account but it sure isn't making any interest in the bank.

I have no idea what my neighbors do, but where we live are very high tax bills ($25k) and high home owners insurance so maybe easier for some to just break it up over time and pay in mortgage? Again, they may be writing a check.

We've always just paid the bills, but would be fine with bank paying it to.