I'm Not Adding Property Taxes and Insurance to My Monthly Mortgage Payment. Here's Why

I am buying a house soon. I got a mortgage to pay for the property since I can't afford to buy it outright and wouldn't want to tie up my money doing so anyway.

When I got my mortgage loan, though, one thing that I insisted on was that I did not want to put my property taxes and insurance payments into escrow. Here's what this means, along with why I wasn't interested in taking this approach.

What it means to escrow your property taxes and insurance payments

When you purchase a home, you don't just have mortgage costs to pay. You also must pay property taxes on the home, as well as homeowners insurance costs.

Many mortgage lenders want you to pay these costs throughout the year, adding them onto your monthly mortgage payment. For example, if your monthly mortgage payment for principal and interest would be $1,500 and your annual property tax bill and insurance bills add up to $5,000 total, you wouldn't just pay your $1,500 payment for your loan to your mortgage lender each month. Instead, each month you'd pay 1/12th of $5,000, or about $416.67, to your lender on top of the $1,500.

The lender would then put this money into an escrow account, where it's stored for safekeeping. When your property tax and insurance bill come due each year, the lender would have the cash ready to pay it -- rather than just hoping you have the funds.

While there are some benefits to this, including that you don't have to save up money for property taxes and insurance when the annual bill comes due, I opted out of this approach.

Here's why I didn't want to do escrow

Although there are advantages to escrowing property taxes and insurance, there are a few reasons why I don't want to do that and why I would prefer to just pay my bills myself.

• I'd prefer not to give up control of my money. If I have to put money into an escrow account, I'm tying up all of that cash in the escrow account throughout the year -- long before my tax and insurance payments are actually due. If I instead save the money in a high-yield savings account, I have access to it throughout the year. If I need a little extra cash one month to cover an unexpected expense, I could borrow from that account if I needed to and then just put more money in later.
• I can save for taxes and insurance on my own schedule. I don't have to send in the same amount every single month as I would if I was escrowing my payments. Since my income is irregular, it sometimes makes sense for me to save more in one month for taxes and insurance and less in a different one.
• I don't have to tie up extra money. Usually, mortgage lenders want to make sure that there's enough in escrow, so they require you to keep some extra reserves in there. I don't really want to put a few extra months worth of payments in an account I can't access.
• It's easier to switch insurance: If I want to change insurance companies, I don't have to worry about sending any premium refunds back to my insurer so my escrow account balance doesn't fall too low.

You may also decide you don't want to escrow your taxes and insurance for the same reason. But if you don't, you need to be sure you can trust yourself to save the required amount so you can pay the bills when they come due. And not all lenders allow you to skip escrow, so you should be prepared to shop around for a mortgage provider that makes this possible.