A Look at Real Estate Taxes and Insurance
As a homeowner you will be required to pay property taxes and insurance. In some instances the lender may allow you to pay taxes and insurance separate from you mortgage payment. If the lending institution requires you to pay taxes and insurance along with the mortgage payment, the lender will open, what is called, an escrow account to hold this money until the payments are due. This is a convenient way to ensure that you have money to pay your taxes and insurance when they come due and the escrow account is an interest bearing account.
RESPA, Real Estate Settlement Procedures Act limits the amount of money a lender may require a borrower to hold in an escrow account and also requires the lender to provide initial and annual escrow account statements.
It is up to the lender whether or not the borrower must maintain an escrow account for the purpose of paying taxes and insurance. Federal regulations only limit the maximum amount that a lender can require a borrower to maintain in the account.
If the lender allows you to pay the taxes and insurance separately you will usually get a quarterly or semi-annual property tax bill and pay for your homeowner’s insurance premium on an annual basis. Many people actually prefer doing it this way because it gives them control over their money or investment accounts to earn interest until their payments are due. However, if you don’t want to worry about coming up with thousands of dollars all at once you may be better off simply paying it on a monthly basis.
