Community Chat

[chrystaltree]

The principal.  Always.  

[Catty2]

I try to pay extra towards the principle every month.  

[JeanLouiseFinch]

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

[VaBelle35]

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.

[gertrudecloset]

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@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

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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 

[Melzie]

Principle

[JamandBread]

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.

[Boehm Collector]

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

[Mominohio]

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!

[scatcat]

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@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.

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