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Started By
Message
Mortgage escrow vs invest escrow amount in index fund?
Posted on 9/6/17 at 4:36 pm
Posted on 9/6/17 at 4:36 pm
Help me out if I'm off base here. But currently my escrow is about $700/mo with Homeowner's/ windstorm/flood/property taxes.
What are your thoughts on taking this $700/mo and investing it in a broad index fund like Vanguard Total Stock market index (VTI) or Russell 3000 (VTHR)
Here I am setting aside $700/mo making no money off it, and this amount increases a bit annually as my Ins & taxes increase. By investing monthly (at the same time as my normal note goes out), I would get to dollar-cost-average my investments.
I completely understand there will be some down years where I make no money, and will even lose a significant chunk - but over the life of my Mortgage (15-yrs) it seems like I would come out ahead? I'd at least feel better that my money is doing something for me.
Does anybody do something similar to this? Is this just a terrible idea? Am I missing something?
Thanks
What are your thoughts on taking this $700/mo and investing it in a broad index fund like Vanguard Total Stock market index (VTI) or Russell 3000 (VTHR)
Here I am setting aside $700/mo making no money off it, and this amount increases a bit annually as my Ins & taxes increase. By investing monthly (at the same time as my normal note goes out), I would get to dollar-cost-average my investments.
I completely understand there will be some down years where I make no money, and will even lose a significant chunk - but over the life of my Mortgage (15-yrs) it seems like I would come out ahead? I'd at least feel better that my money is doing something for me.
Does anybody do something similar to this? Is this just a terrible idea? Am I missing something?
Thanks
3
Posted on 9/6/17 at 5:12 pm to Fbohn1
quote:
Is this just a terrible idea? Am I missing something?
The part that no mortgage company will allow you to do this.
Posted on 9/6/17 at 9:35 pm to GenesChin
Will a mortgage company (Chase) allow one to only escrow homeowners insurance and let one keep wind/hurricane policy out of escrow?
This post was edited on 9/6/17 at 9:35 pm
Posted on 9/6/17 at 9:42 pm to GenesChin
quote:
no mortgage company will allow you to do this.
I had the opportunity when I refinanced to opt out of escrowing altogether and pay for my taxes and insurance on my own. At that point - if I elected not to escrow - I would have been able to do exactly what I talked about. How do they have any say what I do with my personal money that I decided not to escrow?
Posted on 9/6/17 at 9:44 pm to Fbohn1
I don't escrow my HO or taxes through capital one.
Posted on 9/6/17 at 10:50 pm to Fbohn1
If you have a conventional loan with at least 20% equity you have the option to escrow or not. Any other type of loan VA, FHA, and RD will not give you the option.
Posted on 9/6/17 at 11:23 pm to Fbohn1
I'll make this sort of equivalent to "should I have my emergency fund in stocks" or "should my house fund be in stocks". And I'll answer with an answer I've used before, which is "It all depends on how well you are doing and time."
Most people say keep emergency funds in cash, because most people don't have much money saved up outside of retirement accounts that may incur a penalty to access OR would not survive a serious downtown in markets.
Ex. If my 6 month expenses are 10,000 and that's all I have, putting that at risk over one year is not good. However, if I've built up 30,000 in cash, I'd recommend moving to markets since you could survive 60% to the downside and still cover. The cost of not investing is now hurting you over time. Admittedly, less and less since you should be getting wealthier in relation to expenses over time in this scenario.
So on to your situation. If you don't have some larger wad of money rolling over year to year that you pull your taxes/insurance out of, then you absolutely should not be investing this money in stocks.
If you start at "$0" each year, save $700 a month ($8,400a year) and then "zero out" to pay the taxes, etc., you absolutely should not invest this money in stock.
Most people say keep emergency funds in cash, because most people don't have much money saved up outside of retirement accounts that may incur a penalty to access OR would not survive a serious downtown in markets.
Ex. If my 6 month expenses are 10,000 and that's all I have, putting that at risk over one year is not good. However, if I've built up 30,000 in cash, I'd recommend moving to markets since you could survive 60% to the downside and still cover. The cost of not investing is now hurting you over time. Admittedly, less and less since you should be getting wealthier in relation to expenses over time in this scenario.
So on to your situation. If you don't have some larger wad of money rolling over year to year that you pull your taxes/insurance out of, then you absolutely should not be investing this money in stocks.
If you start at "$0" each year, save $700 a month ($8,400a year) and then "zero out" to pay the taxes, etc., you absolutely should not invest this money in stock.
This post was edited on 9/6/17 at 11:27 pm
Posted on 9/7/17 at 7:48 am to ellesssuuu
quote:
If you have a conventional loan with at least 20% equity you have the option to escrow or not.
If the lender believes that you have the means to come up with lump sum payments for insurance and taxes they can opt to waive escrow, regardless of the 20% equity. I know this, because it's what we did.
Posted on 9/7/17 at 8:07 am to Epic Cajun
My lender once screwed up and did not pay my HO insurance even though they told me they had. I ripped their arse in a letter up and demanded they end escrow and let me handle taxes and insurance since I am more responsible than them. They agreed.
Posted on 9/7/17 at 8:14 am to Fbohn1
quote:
How do they have any say what I do with my personal money that I decided not to escrow?
Well they also have the option of charging you an increased interest rate for a mortgage opting out of escrow
They may not explicitly state it that way, but opting out of escrow almost always results in an increased interest rate
Posted on 9/7/17 at 10:10 am to Epic Cajun
you have a very special lender. I have been a mortgage lender for 14yrs. you can only waive escrows on conventional loans with 20% down. Mortgage companies hate to waive escrows. We want to make sure taxes and insurance are paid.
Posted on 9/7/17 at 12:13 pm to hawkeye007
Probably an in house portfolio loan.
Posted on 9/7/17 at 12:42 pm to GenesChin
quote:
They may not explicitly state it that way, but opting out of escrow almost always results in an increased interest rate
I got the same rate that I was quoted before I told them that I wanted to opt out of escrow. Maybe they just did me a solid. I really don't know.
Posted on 9/7/17 at 12:43 pm to ellesssuuu
quote:
Probably an in house portfolio loan.
Yes, this is what it is. It's from a smaller bank, who does not sell their mortgages to others.
Posted on 9/7/17 at 5:58 pm to Fbohn1
Slight highjack.
Do homeowners with multiple properties usually do this? The possible interest earnings from a single property is fairly small, but multiple properties changes that equation. I was thinking of simply adding the escrow to my ally account. Even 1.2% is better then 0%. Anyone do something similar?
TIA
Do homeowners with multiple properties usually do this? The possible interest earnings from a single property is fairly small, but multiple properties changes that equation. I was thinking of simply adding the escrow to my ally account. Even 1.2% is better then 0%. Anyone do something similar?
TIA
Posted on 9/7/17 at 7:14 pm to Oenophile Brah
Putting money in an Ally account is totally fine. It doesn't raise nearly the kind of risk that investing in stocks do in the short term. Putting it there or similar account is what you should be doing.
This post was edited on 9/7/17 at 7:17 pm
Posted on 9/7/17 at 7:41 pm to Teddy Ruxpin
I largely agree with Ruxpin.
If you have plenty set aside already so that you are virtually certain of being able to come up with the payment even if the market crashes tomorrow, then sure, you might as well. The "risk" here isn't that you can't make the payment, it is that you'll have to sell some of that index fund right at the wrong time, i.e. right after a crash. So still risky in the sense of having to forego better future returns, but not risky in the sense of having to give up your home either.
Or you can just invest in a CD that matures just before the due date. Now you're giving up return but also volatility.
Or somewhere in between. So like he said, it depends.
If you have plenty set aside already so that you are virtually certain of being able to come up with the payment even if the market crashes tomorrow, then sure, you might as well. The "risk" here isn't that you can't make the payment, it is that you'll have to sell some of that index fund right at the wrong time, i.e. right after a crash. So still risky in the sense of having to forego better future returns, but not risky in the sense of having to give up your home either.
Or you can just invest in a CD that matures just before the due date. Now you're giving up return but also volatility.
Or somewhere in between. So like he said, it depends.
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