August 22, 2008

Are you escrowing your RE tax bill?

One of the easiest ways that homeowners can save an additional $150+ annually is to remit their own real estate tax bills to their towns rather then escrowing the payment. Let's walk through some of the numbers.

Our 2008/2009 tax bill is $12,144. Although the mortgage holder will pay interest on any escrowed funds, it is pathetically low. In fact, it is almost zero, so for rounding purposes, let's call it zero. If you take the same balance and invest it in any online bank (ING Direct is currently offering 3%) you earn about $364 for the year.

Let's say your real estate taxes are $4,000. At 3% you still save about $120 per year. Not bad for a simple phone call to the bank.

Shortly after we purchased our home in 2007, we called the bank and asked if we could stop escrowing our real estate tax bill. Without any pushback, the bank agreed and our escrow balance was refunded to us and the monthly payment reduced. It was really that easy.

The one caveat is that you need excellent credit in order for the bank to allow this. If your credit score is low, don't expect them to agree.