Real Estate Tip: Escrow Accounts -- Do You Really Need Them?

If you have a mortgage on your property, whether it's for your personal residence or a real estate investment, chances are you have an escrow account. But if you are working on building wealth through real estate, you may want to take a hard look at your escrow account (or accounts, if you own more than one piece of real estate) and decide if you really need it.

Escrow accounts, also known as impound or reserve accounts, are often maintained by mortgage lenders on behalf of their borrowers. They typically work like this: the borrower's monthly payment covers the loan principal and interest, as well as a prorated amount that is deposited into the escrow account. The lender holds those funds and uses them to pay taxes and insurance for the property when those bills come due on an annual or semiannual basis.

There are a number of benefits to both lenders and borrowers. Serious problems can arise when taxes and insurance bills are not paid, so having that money in escrow helps reduce the lender's risk. The lender also benefits by having funds on deposit; most states don't require lenders to pay interest on escrow accounts, but they can certainly earn money on them. And secondary market buyers who purchase mortgage notes generally pay more for loans that have escrow accounts.

Many borrowers prefer the convenience of spreading the payment of a big bill over 12 months instead of having to make it at one time. Also, the lenders take care of tracking tax and insurance bills, so the borrower doesn't have to. However, if the value of the property is high--creating correspondingly high tax and insurance bills--the borrower is losing interest. Or, if you are a real estate investor with multiple properties, the total of your escrow accounts could be substantial. For example, if your taxes and insurance run a total of $12,000 a year and you have an escrow account, you're losing hundreds of dollars in simple interest and even more if you were to put that money in a higher-yield investment. And when you own several properties, the cost of the convenience of an escrow account increases accordingly. As part of your overall wealth-building strategy, you could put that money in a short-term investment (perhaps a property you intend to quick-turn) and let it work for you until you have to pay your taxes and insurance.

Policies on escrow accounts vary by lender and according to state law. Generally, escrow accounts are required when the loan-to-value ratio is 80 percent or higher. Some lenders charge a fee to waive the escrow account; before accepting such terms, be sure the cost of waiving escrow is less than the potential earnings from the interest.

Finally, be sure you have the discipline and resources to pay your property taxes and insurance on time before you take the step of eliminating your escrow account.

Jordan Taylor is the editor of Millionaire Mentor™ Newsletter, which is published by Whitney Education Group, Inc.™ To sign up for a free subscription, visit http://russwhitney.com

Related Articles:

Tennis Channel Teams with California Giant Berry Farms to Promote Network's Inaugural Wimbledon Coverage
Tennis Channel and California Giant Berry Farms have developed a national co-branding effort that will coincide with the television network's first-time coverage of Wimbledon, one of the most prestigious - if not the most prestigious - tournaments in the sport. The partnership, titled "The Sweetest Match," includes a national retail campaign, multimedia outreach and a "Win a Trip to Wimbledon" sweepstakes that offers the chance to attend the 2009 event. The promotion opens May 9 and runs through the conclusion of this year's competition, set for June 23-July 6.

Celebrate Easter With A Last-Minute Golf Getaway From The Glens Group
Easter Golf Package Can Be Booked Online For Hassle Free Reservations

Why Get Attorney Services in California?
Some often fail to see the importance of attorney services in California. But dont you know that at some point in our lives, we may be needing their help? These professionals, who have practiced for years, have a vital role and responsibility to society.

10 Important Tips to Successful Real Estate Investing
When it comes to investing, everybody has certain goals and aspirations. However, we have found that there are certain guidelines every aspiring real estate investor needs to know:1.

The Benefits Of A Golf Swing Analyzer
Are you looking to give yourself an edge in the game of golf over your friends. Continually slicing or hooking the ball in the woods on the first tee? A golf swing analyzer is specifically for finding those minute points of your swing mechanics that are causing you to slice, hook, or duff the ball and improve on them.

To Catch all the NASCAR Action, the Neon Garage at Las Vegas Motor Speedway is the Hottest Spot in the Sport
NASCAR action is coming soon to one of the most exciting venues in racing -- The Las Vegas Motor Speedway. The recently constructed Neon Garage provides fans an unforgettable NASCAR experience and unprecedented views of this year's UAW-Dodge 400 Sprint Cup event and Sam's Town 300 Nationwide Series race.

Using a Free "Loss Leader" with Lists – Viral List Builders, Opt-In Lists
Why SFI - using SIM to lead with VLBs and Safelists By Silke Stahl What is the best way to lead when using Viral List Builders and SafeLists? After all, you are not marketing to fresh leads – your demographic has already joined an affiliate program and has joined the list program to market it. You need and angle, and offering a freebie could well be the best way.

Improve Your Golf Performance With These 5 Tips
Improve your golf performance. Is this always on your mind? When you go out to golf you're hoping for a good round.

Take A Look At The Florida Panhandle - Part 2 - Gulf Islands National Seashore And South Walton Beaches
The Gulf Islands National Seashore and the South Walton Beaches

Las Vegas Skill Stop Slot Machine - Top Review
Description: Read the critical review of the LAS VEGAS Skill Stop Slot Machine here and decide whether you would want to buy it This page happens to be an interesting one for you if you are interested in poker and do not want to go to any of the casinos as you are afraid of losing