I am in the process of refinancing. My mortgage lender has quoted competitive rates. However, howntingever he has mandatory escrow for property tax and hazard insurance. My current mortgage does not have escrow conditions. My re-fi lender tells me that if I choose not to go with escrow, I will be offered a rate that is about 0.25% higher than what was quoted. My question, therefore, is: How does the re-fi lender benefit from the escrow? If they do not benefit, they would not be discounting the rates for choosing escrow. I also would like to know if this is a common practice with other lenders.
Other misc. information: My LTV is about 60%, and my credit score is excellent.
If HO insurance and property taxes are escrowed, the lender is also guaranteed that as long as you've made your mortgage payment, then your HO insurance and property taxes will be paid (or at least under their control to have them paid).
And yes, it is not uncommon for the lender to provide a better rate with escrow (some but not all lenders).
You might be able to go with escrow for closing, then contact the servicer later and remove the escrow. You'll probably need to check around on the internet or call the servicer directly to see if it's possible (and/or if there is a fee for doing so). You might ask the lender now, but they may or may not give accurate information since the person you are dealing with is in sales, not servicing.
Xnarg
Senior Member - 5K
posted: Nov. 17, 2009 @ 8:54p
Escrow waiver fees (if you don't have property tax and homeowners insurance in escrow) have been common for decades.
I agree w/ civ2k1, this reduces the lender's risk of tax and insurance not being paid.
Colt2001
Senior Member
posted: Nov. 18, 2009 @ 2:30p
Fannie Mae and Freddie Mac Loan Programs charge .25% (.125% CA)Fee of the total loan amount to not escrow. The rate doesn't go up .25% but the lender has a pass through charge/fee of .25% that is paid to Fannie for not escrowing. Fannie/Frddie are buying an insurance policy to pay their fees back for paying your back taxes if you dont pay them and the home is put up for auction. All borrowers regardless of credit score or lower ltvs have to pay this to not escrow. Your lender is not making anything else off of you and this fee is going directly to Fannie/Freddie.
So if you want the privilege of paying your own taxes and HOI policy then you have to pay the fee. By the way for you FWF's out there, the break even point to pay yourself back for this upfront fee from Fannie is about 7-8 years from collecting interest on your monthly averaged escrow account.
Xnarg
Senior Member - 5K
posted: Nov. 18, 2009 @ 3:24p
Colt2001 said: ...By the way for you FWF's out there, the break even point to pay yourself back for this upfront fee from Fannie is about 7-8 years from collecting interest on your monthly averaged escrow account.That depends on the interest rate one can get.
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