Dave Says: Do You Have the Discipline?

Dear Dave,

My home escrow keeps rising because insurance premiums and property taxes are going up. A few people have suggested that I pay those bills once a year instead of rolling them into my monthly mortgage payment. They say I could put the money into a high-yield savings account and earn a little extra in the meantime. What do you think?

Dean

Dear Dean,

I think you need to ask yourself a very important question, and you should be completely honest with yourself when you answer it. Do you have the discipline to set aside one-twelfth of the total amount every month in a high-yield savings account so you’ll have enough to pay your taxes and insurance?

I would only do this if I were extremely disciplined and knew for certain that I would put the money aside every single month. There is no room for mistakes or forgetfulness here, Dean. You would also need to keep a close watch on your insurance and property tax bills, because you definitely do not want your homeowners insurance to lapse. If that happens, the mortgage company can force-place insurance on your house, and it costs about ten times more than standard coverage.

If you truly have that level of discipline and your mortgage company keeps messing up your escrow account by collecting too much or too little simply because it cannot do basic arithmetic, then I could see making the switch to avoid the hassle of an unreliable escrow setup.

But I would not do it just to chase the interest. Three percent of nothing is nothing. You are not going to get rich from the interest on a high-yield savings account.

Good question!

— Dave