November mortgage update and dealing with escrow after the mortgage is gone

Last month (October)
Years left: 0.416666667
P =$1,189.48, I =$24.93, Escrow =$812.79

This month (November)
Years left: 0.333333333
P =$1,194.19, I =$20.22, Escrow =$812.79

Right now we spend $812.79 each month in escrow.  After the mortgage is gone we will be paying property taxes and insurance directly.

There are a number of different options for how to pay for these.  I could continue saving $812.79 each month.  I could pay the insurance monthly via credit card (for a small “processing” fee), and the property taxes in two lump sums.  Or I could save up an additional 10k in our all-purpose emergency fund and pay each of the bills once a year when they’re due.

The last option seems the least hassle, mental and otherwise for me.  Starting in March I will aim to keep our savings account at 31k (though it may take a few months to get there).  In July we pay insurance and in December we pay property tax.  Then we’ll refill as we get paid.  We’ll lose some in say, stock market gains, but it’ll be safer in case DH loses his job.  (Dear Hillary Clinton, please get congress to fund research.)

It is possible that if we both continue to have high incomes that I’ll start playing the pay property taxes twice in one year (and itemizing) and zero times the next (and taking the standard deduction) game and time donations to match, but we don’t have to worry about that this year given my leave last year.

Do any of you pay house insurance and property taxes directly?  How do you save for them?  How do you time payments?

27 Responses to “November mortgage update and dealing with escrow after the mortgage is gone”

  1. Omdg Says:

    What are you going to do with the money you’re no longer using to pay the mortgage once it’s all paid?

    • nicoleandmaggie Says:

      It doesn’t have a specific target, just goes into slush. Where it will ultimately end up will depend on what happens with DH’s job. Right now we have a vague plan that excess money will go into taxable investments.

  2. Practical Parsimony Says:

    I do. However, I get a homestead exemption and pay no property taxes.

    • Linda Says:

      Wow, that’s a pretty generous homestead exemption! I’ve never heard of having 100% of your property taxes reduced because you live in the house.

      • Debbie M Says:

        Me, neither. I did know that different states do things very differently. I know Florida has bigger exemptions for year-long residents than for snowbirds.

        Anyone know about other states?

        I’m in Texas. There’s some kind of 10% cap that I don’t understand–I think that’s for everyone. Then our homestead exemptions are specific dollar amount deductions for two kind of tax (25K for the school district, 5K for the community college), and then a changing amount for the others (this year its 17.5K for the city and 44K for the county and for health services). Then the tax rates are applied to the new taxable values.

        So this year the appraised value of my house is 219K, though I’m only paying taxes on 194K, 202K, 175.5, and 214K.

        After I turn 65, I qualify for another exemption that caps the amount of the school district taxes to the amount I paid at age 65.

        This year my taxes come to 4.3K (2.3K of that is for school district taxes). (Full disclosure: We have no income tax. My state has a 6% sales tax, but in my city it’s 8.25%.)

  3. Liz Says:

    Non-American here – we don’t have escrow in the sense that seems to be the norm in the US and instead pay property tax and home insurance separately from our mortgage. (I think maybe you can have one or both routed through your mortgage lender but it doesn’t seem to be common). For us, home insurance is an automated monthly payment from the chequing account. Property tax is billed twice a year and we build up a bit of a buffer in the chequing account when we know it is coming (by transferring less to savings over the previous couple months).

  4. Katherine Says:

    We have a family loan so we pay insurance and property taxes directly. We pay property taxes twice a year (we have the option to pay them all at once, but my understanding is that if you do that here you have to do it in the fall, so you can’t do two property taxes in one year and none the next). We pay home insurance one a year. The taxes and insurance total to about $3K per year, and we just pay it out of our general savings account, like you’re planning to do.

  5. millionaireyet Says:

    After paying off the mortgage last March, we have been saving monthly for taxes and insurance, in addition to the yearly HOA. I like paying only once a year for each item, for they are in succession – taxes in December, HOA in January, and insurance in February. .

  6. Taylor Lee @ Yuppie Millennial Says:

    I opted out of escrowing. My property tax (quarterly) and insurance (annually) are low enough I can cash flow them when they come due. When my income drops and I can no longer easily cash flow, I’ll probably do what I do for home maintenance, which is have a recurring monthly transfer to a dedicated savings account.

  7. SP Says:

    Cash flow for insurance, a savings account for taxes paid in (roughly) December and March. Presuming summer salary for my husband isn’t at risk for a year, it is simplest to just use that extra cashflow to fill up the account in one of those months. If we had uncertainty in it, I’d have to pay more attention and contribute regularly.

  8. Leigh Says:

    When I was budgeting, I would set aside 1/12 of the property taxes amount each month. My insurance is only about $300/year, so I just pay that once a year and don’t worry about it. The property taxes are paid in two chunks about co months apart and at this point, I mostly just cash flow them.

  9. Linda Says:

    When I bought this house in July, it was the first time I’ve ever had a mortgage that didn’t have an impound account for taxes. I was surprised that I was offered a mortgage without one since with my previous mortgages even when I’d asked to pay the taxes and insurance directly myself, I was told that the lender required me to establish an escrow account for the taxes, at a minimum. This time I was required to pay for one year of homeowner’s insurance at close instead of continuing to pay it monthly along with my auto insurance and umbrella policy premium. Next July when the homeowner’s premium is due I’m not sure whether I’ll roll that back into a monthly payment or just pay it in one lump sum.

    For now, I guess what I’m doing would be called cash flowing the taxes. My approach to monthly expenses/budgeting has always been to have my paycheck deposited into one of my two savings accounts and not my checking account. Then I transfer enough to cover bills each month. The extra compiles in the savings account until it is needed for large annual expenses like property taxes and my LTC premium.

    I’ve considered setting up a separate target savings account just for those big annual expenses but my current approach seems to be working just fine for now. Of my two savings accounts, one is the EF that is currently fully funded and just sits collecting interest. The other savings account is for everything else: vacation/fun fund, big purchases (like furniture), and annual expenses. I like not having a large number of accounts that require me to keep up with complicated savings schemes, but I should probably start thinking about how to save for or mentally mark money for auto replacement. My current car is running just fine, but an accident could change that.

    • nicoleandmaggie Says:

      I think cash-flowing would be having enough money leftover from your paycheck after you pay your required bills to pay the property taxes. Sadly we don’t have an extra 8K at the end of the month. :/

      • Linda Says:

        Thanks for explaining the term. I really did not understand it. No, I don’t have enough extra cash at the end of the month to pay my annual tax bill, either. I just spend less than I earn each month and save the extra. My annual bonus plus savings from spending less than I earn each month is how I get enough money to pay my property taxes.

      • nicoleandmaggie Says:

        I bet it’s nice to have a high enough income that one can just not worry about keeping extra money in savings for annual bills.

        (I’d like to try that out some time!)

      • Linda Says:

        Huh. I guess it does sound like I have a sweet deal. It’s true that I don’t struggle to pay my monthly bills, but I do make sacrifices to afford my current lifestyle. The “slush fund” in which I have my paychecks deposited is nicknamed “Vacation Fund,” but that’s a misnomer because all my big expenses come out of it (annual LTC premium, property taxes, etc.) and I haven’t had a real travel vacation since May 2014. I just chose to label it that way back when I opened it. I also don’t have any children and the expenses associated with them, and live a pretty low key life. If I had more monthly income money I wouldn’t have taken on a housemate, I’d go out more often for fancy dinners and for entertainment, and I’d do more fun travel.

  10. Debbie M Says:

    I was planning to budget that amount monthly and then pay it in one lump sum when it was due. But my insurance company insisted that I pay monthly with no fee. Okay, that’s good.

    The cheapest way to pay property taxes is in person with a check in a lump sum before the due date. So that’s what I do. I budget that, send it in to savings each month and keep track of what it’s for in a spreadsheet (rather than a dedicated savings account).

    Like you, I put off organizing charitable contributions and property taxes to be paid every other year for various reasons until last year when I took the standard deduction and this year I will have my first big itemized deduction. It seems scary (property taxes) and horrible (charitable contributions) to put them off like that, but you can certainly save a pile of taxes.

  11. Ewan Says:

    Variance is interesting :). We’ve never had an escrow – on each of our mortgages it would have cost us extra to do so, so no dice. Insurance payments online via direct bank transfer; taxes are two of the very rare actual paper cheques that we write. [Up until this past year they were written to the individual who held the town treasurer position, not to the town, which always seemed bizarre.] Unsolicited plug for local insurance agents – I was really surprised to find that despite significant time on my part getting competing quotes, our local unaffiliated insurance guy was able to save >20% for us.

  12. twinsfan Says:

    I have a mortgage but don’t use escrow. My budget is based on 2 paychecks a month and for the months that have three paychecks I put most of the third in savings which I use to pay property taxes twice a year and insurance one a year.
    I have multiple savings accounts with various labels; property taxes, stuff for condo, tech, travel, emergency, ect. That way I can make sure I have enough saved for various things and it makes it less mentally taxing to buy a new laptop or go on vacation because I’m using dedicated funds and know that I can still handle and emergency if an appliance dies or something expensive the day after I come home from vacation.

  13. chacha1 Says:

    Since we are renters and our property doesn’t have a structure, both costs are way low for us. I pay the renters insurance once a year and DH pays the property taxes once a year. Each bill is roughly $400. :-)

    When/if we ever manage to build a house up on our hill, I expect that we will do the fund-monthly, pay-annually option for insurance and taxes. Not a clue what the amounts will be, but the smaller/cheaper we can keep our house plan, the lower both will be!

  14. eemusings Says:

    I still don’t really know what escrow is when Americans mention it…

    I pay about $1200 for house insurance. I pay it annually, same as my car and contents insurance.

    Council rates (our version of property taxes) is about $1600 a year and I pay it quarterly. I think that’s the default. I know you can change it – I think some people pay monthly, for example.

  15. nicoleandmaggie Says:

    Got my property tax bill today. At least there’s plenty of advance notice before it is actually due.

    • Leigh Says:

      That’s good! Mine comes in the middle of one month and the first half is due 2.5 months later, with the other half due six months later.

  16. gasstationwithoutpumps Says:

    I’ve always paid my mortgage, property tax, and homeowner’s insurance separately. My first house mortgage was a private one (from the previous homeowner). For my second (and current) house, I had enough down payment that the mortgage did not require an escrow account. At that time (30 years ago), escrow accounts were an expensive way to pay insurance and taxes—the escrow holder ended up with about 10% in escrow fees. I have enough savings discipline to pay annual bills, so I opted to pay them myself. I think I’ve paid one 10% penalty for a late tax payment in 30 years.

    Of course, property taxes in California are tiny compared to some areas—most of our taxation comes in income tax and sales tax. (Note: I don’t really approve of this scheme, as it it means that “old money” and corporations pay very little in tax compared to the middle class.)

  17. Revanche @ A Gai Shan Life Says:

    We got our property tax bill on Thursday. The first installment was due today. D: The next one is due in February. Our choice is to pay it all at once now, or half now and half later. The insurance charges extra if you want to pay monthly so I just pay that in as large a sum as possible.

    Budgeting for the tax has never been consistent. I sort of cash flow it in the sense that I regularly deposit parts of our paycheck for all our expected expenses into one checking account and we keep enough of a reserve from month to month to pay for car and home insurance, and other irregular expense. I sort of don’t in the sense that I set aside reimbursements into a linked savings account for this particular irregular expense because $6K is a larger annual whack than I tend to keep in our checking account. Coming up with half of that just after December when I make our last charitable donations and pay for a big life insurance premium is a pain so I may start saving monthly.

  18. Cash Flow Diaries Says:

    I have to pay taxes and insurance on a few rentals that I owe and I just take out small increments from the rent payments I collect each month so that in 12 months, I have the full amount to pay. As for when I pay, I get a bill from my insurance and tax assessor to pay once a year so I just pay it when I receive the bill.

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