3 Reasons You SHOULD Include Taxes and Insurance Into Your Mortgage

Buying a home means making a lot of financial decisions, often all at once, without having time to really consider them. Take, for example, a mortgage escrow account. You may be asked if you want to escrow your taxes, insurance, and other yearly fees so that the bank will pay them on your behalf, and what you decide will follow your mortgage until it's paid off.

Some personal finance experts will tell you that you should never escrow, but I spent a decade as a Realtor, and I can tell you, I will never not escrow. Here are three reasons why you shouldn't skip this vital financial step, either.

1. You may not have a choice

If you borrowed money to buy your home, like most people, you may have used an FHA, VA, or USDA program to do so. When it comes to these programs, escrow accounts are generally a part of the package due to the lender requirements, which means you simply cannot say no to an escrow account.

You can sometimes skip the escrow account on a conventional loan, but often you'll need at least 20% down before you can get an escrow waiver.

If you're unsure if the loan you want will require an escrow account be established, reach out to some mortgage lenders, including our favorites on this curated list. They can help you better understand if you will be required to escrow or if you can qualify for a waiver.

2. You'll never get behind on your taxes

I know, I know, you're not going to be that guy who falls behind on his taxes, but I'll tell you something -- no one thinks they're going to be that guy until they are. I had a good friend who had paid her mortgage in full, and did not realize she'd have to take over paying the taxes. No one told her, she simply didn't know. She ended up having to scramble when the county decided it was fed up and was ready to sell her place on the courthouse steps for what she owed.

Of course, my friend's situation was unusual, but it's not the only way you can get in trouble with back taxes. Let's say you do set money back every month for your taxes and something terrible happens and you have a sudden expense you need to cover. Well, you think to yourself, I've got this tax money -- I can replace that before it's due, no problem.

Except over time, other things happen and it is a problem. An escrow account protects you against bad luck, and keeps your taxes paid on time, every year, for as long as you have your loan, by giving you no other option but to lock that money away where you can't touch it, no matter what happens.

3. You'll have control over your insurance costs

Unlike taxes, which if left unpaid can literally cause you to lose your home, not having homeowners insurance is more of a personal choice to take the risk that you'll have to pay for damage to your home out of your pocket. Except, when you have a mortgage, it's not really a choice.

You won't lose your home if you don't pay for homeowners insurance, but your lender can get force-placed insurance on your behalf, which means the home will never go without. However, force-placed insurance has two main issues:

1. It's extremely expensive, often many times more expensive than regular homeowners insurance
2. It's not there to cover you or your losses, only to protect the lender from loss.

This will happen even if you don't have an escrow account and fail to keep a homeowners insurance policy in place, so better to just escrow and have no doubt.

Mortgage escrows are tools, not prisons

A lot of people reject the ideal of mortgage escrow accounts because they misunderstand them. They're tools, they're not prisons, and any interest you might earn from keeping your insurance and tax money in a savings account will only amount to a few dollars annually.

If you really want to save money on your mortgage, you should be keeping an eye on current rates by using a page like the one we maintain here. Lower mortgage interest rates are where the big savings come in, not skipping your escrow account.