Earn money with your own escrow account

Does it really pay to handle escrow functions, like paying tax and insurance bills, on your own rather than let the lender do it for you? See for yourself (Chart below).

We've worked out what a sample homeowner would earn over the course of a year by saving money in an interest-bearing personal account, rather than a non-interest bearing, bank-controlled escrow account. Bottom line? A few minutes of extra effort a month translated into \$78 in interest earnings. The larger your tax and insurance bills, the more you can earn by going it alone too, since you'll be earning interest off larger balances.

We assumed our sample borrower owed \$3,000 in taxes and \$1,000 in homeowners insurance during the sample year.

The taxes were due in two \$1,500 installments -- one on May 1 and one on Nov. 1 -- while the insurance was due in a lump sum on Nov. 1.

On the first of each month, our sample consumer socked away 1/12th of the \$4,000 bill, or \$333.33, just like he would have had to if he went with an escrow account.

We also assumed he started the year with two months' worth of those payments on deposit since most lenders require borrowers to keep a reserve of that size in their accounts. To calculate the interest earnings, we assumed the borrower put his money into the highest-yielding MMA found by Bankrate.com researchers in early April. It had an annual percentage yield of 5.5 percent.

Here is how the borrower's balance would change over the course of the year:

 Month End of month balance Payments Interest earned* January \$1,004.47 \$4.47 February \$1,343.78 \$5.99 March \$1,684.62 \$7.51 April \$2,026.98 \$9.03 May \$864.16 \$1,500.00 \$3.85 June \$1,202.85 \$5.36 July \$1,543.05 \$6.87 August \$1,884.78 \$8.40 September \$2,228.03 \$9.93 October \$2,572.87 \$11.46 November \$408.01 \$2,500.00 \$1.82 December \$744.66 \$3.32 Total Interest Earned \$78.00 *Monthly numbers rounded to the nearest cent SOURCE: Bankrate.com Research

-- Posted: April 19, 2001
 • Main story: Let your escrow grow for you • Rate Trend Index: Find out which way rates are headed • The 10 biggest home- buying mistakes • Refinancing your other loans • CHART: Interest rates over the past 10 years • Appraisers can bust your bubble by inflating the value of your home • Being a prudent home buyer -- set your own standards • More mortgage stories

National Mortgage Rates
OVERNIGHT AVERAGES
Rates may include points.
 30 yr fixed mtg 3.99% 15 yr fixed mtg 3.06% 5/1 jumbo ARM 3.48%

 RELATED CALCULATORS Calculate your monthly payment How much house can you afford? Fixed or adjustable rate: Which is right for you? VIEW ALL

BASICS SERIES
Mortgage Basics
 Follow the process from house huntingto closing.
 • How much can I afford? • How much is my payment? • What documents do I need? • What is a home inspection? • What is the closing? • Can I remove PMI?

 MORE ON BANKRATE
Mortgage rates in your area
Graph rate trends
Credit scoring
Mortgage basics