digest
Short Summary
Key Points
- A mortgage payment has four parts (PITI): principal, interest, taxes, and insurance, where taxes and insurance are typically paid into escrow.
- Escrow works like a savings account set up by the lender, prorating semi-annual taxes and annual insurance premiums into monthly installments.
- Lenders usually require you to fund a couple months of insurance and taxes at closing as a cushion.
- Waiving escrow generally requires 20% down, because you then carry the risk of paying tax and insurance bills yourself and face penalties if you miss them.
Details Worth Noting
- Concrete instructions: The speaker explains that taxes (paid semi-annually, in February and July in their Ohio example) and insurance (paid as an annual premium) are prorated by the lender into monthly installments; the transcript does not give a specific instruction to divide annual costs by 12 as a user action. Compare the lender's required upfront escrow deposit (a couple of months of taxes and insurance, often a couple thousand dollars) against the cash you would keep by waiving escrow. If you waive escrow, set aside the lump-sum tax and insurance payments yourself before their due dates.
- Taxes in the speaker's area are paid semi-annually, in February and July.
- Escrow convenience comes with the tradeoff of giving up control over that money to the lender.
- The speaker encourages questions in the comments, but no further specifics were given.
Bottom Line
Choose escrow if you prefer hands-off, automatic payment of taxes and insurance; choose to waive it only if you have the discipline, the 20% down (or an investor option like the one mentioned), and the cash flow to pay large bills on time.
