If you own a home in Mesa Arizona, or anywhere in Arizona for that matter, if your responsibility to pay your real estate taxes and homeowner’s insurance. The ramifications of not paying your taxes could be that you lose your home in a tax sale (proceeds are used to pay your back taxes). If you don’t pay your homeowner’s insurance, your mortgage company can force the issue with tacking on extra fees and a new policy which if you don’t pay could eventually lead to you losing your home in a foreclosure.
Another outcome of not paying your taxes could be that you lose your home to foreclosure because that would be a breach of your mortgage contract – this is also the case just mentioned if you don’t pay your insurance (breach of mortgage contract). When you qualify for a mortgage and buy a home, the mortgage documents you sign actually require you to agree to pay your real estate taxes and homeowner’s insurance in addition to paying the mortgage principal and interest.
As a homeowner, you have some choice about how you manage your real estate tax and insurance bills. If your mortgage amount is less than 80% of your home’s sales price, then you can choose to pay your real estate taxes and insurance from your own bank account when the bills come due, or you can choose to pay 1/12 of the annual bill to your mortgage servicer each month, and then let your servicer pay the bills on your behalf when they come due.
Your mortgage servicer, in most cases, is the company that handles your mortgage payment on behalf of your mortgage company. They take your payment and split it up to pay all the folks who get paid whenever you make your mortgage payment.
If your mortgage is over 80% of your home’s sales price, or value, then you will have no choice in the matter, you will be escrowing your taxes and insurance – meaning your monthly mortgage payment will consist of a principal, interest, tax and insurance payment.
Mortgage companies and mortgage servicers prefer that your taxes and insurance are escrowed — it reduces two major lender risks:
- That the home’s real estate taxes go delinquent and are sold to a third-party
- That the home endures catastrophic damage during a lapse of insurance coverage
Typically, if you choose to escrow your taxes and insurance you will get a lower interest rate and/or closing costs. This is because lenders often charge a premium to “waive escrow” (i.e. pay their own taxes and insurance). Escrow waiver fees vary between banks, but can range up to half-percent of the amount borrowed. The larger the loan, the stiffer the penalty in dollar terms.
Choosing to waive escrow can also raise your mortgage rate by up to 0.250 percent.
If you’re unsure whether escrowing is right for you, talk to your loan officer and/or financial planner. There’s good reason to go either route depending on your profile.
