Some mortgage companies collect home insurance premiums with monthly payments. They divide the annual premium cost by 12. They encourage the homeowner to pay that amount each month in addition to their mortgage.
The lender has an incentive to do this. It then knows confidently, the home has insurance. That is something every lender wants to know. However, is it best for the homeowner to allow their lender to collect their home insurance?
What Is Escrow?
First, consider the process carefully. The process of collecting funds for home insurance and taxes and placing them into an account is escrow.
The lender does not access or use those funds for anything. They sit in an account. The insurance company sends the home insurance policy bill to the insurer (and you get one, too). The insurer pays the premium out of the balance in escrow. It is that simple.
The Benefits of Escrow
For the homeowner, escrow offers benefits. For example, it helps homeowners to better plan for and manage the cost of home insurance. Instead of one, large annual cost, the homeowner pays a smaller, monthly amount.
It may also improve reliability. Forgetting to pay your home insurance can result in disaster if a claim should happen. Your mortgage lender may take action as well if insurance premiums falter. If you trust yourself to make payments for your insurance on time every time, escrow offers little benefit to the homeowner.
What About Interest?
Also, consider interest. Money in escrow does not earn interest for the homeowner. If you kept those funds in your own bank account, it might. Some individuals must pay home insurance and taxes over $10,000 a year. The higher this amount, the more potential for you to lose money on interest payments. Yet, property owners must consider the risks. Nonpayment – even forgetting to make a payment, can be costly.
As a property owner, it is up to you to decide whether or not to let your lender collect your home insurance costs. In some lending agreements, it may be a requirement to get the loan.
Which is the right decision? It depends on how financially savvy you feel you are. Can you make this payment on time? Are you confident you will put aside enough each month to cover the cost? If not, work with your mortgage lender to create an escrow account.
Get Stuart FL home insurance right now. Call R.V. Johnson Insurance at 772-287-3366 for a fast, free policy quote.