How Disciplined Are You?

Dave Says –

Dear Dave,

My home escrow keeps going up due to rising insurance rates and property taxes. A few people have recommended that I pay these items once a year instead of with my monthly mortgage payments. They said I could set the money aside in a high-yield savings account to make a little extra money in the process. What do you think of this idea?

Dean

Dear Dean,

I think you have to ask yourself a pretty serious question. And please think very carefully and be completely honest with yourself in the process. The question: Do you have the discipline to actually set aside one-twelfth of the cash needed every month in a high-yield savings account to pay the cost of your taxes and insurance?

I would only do it if I were super disciplined and absolutely knew I’d set the money aside each and every month. There’s no room for error or forgetfulness here, Dean. You’d have to keep a close eye on your insurance rate and property tax situations, because you sure don’t want to let your homeowners insurance go unpaid. If that doesn’t get paid, the mortgage company can slap something called “force-placed” insurance on your house. And it’s about ten times more expensive than regular homeowners insurance.

So, if you really have that kind of discipline, and you’re in a situation where your mortgage company keeps screwing up your escrow account by taking more—or less—than they need simply because they can’t do basic math, I might suggest doing it to avoid all the irregularities of a poorly run escrow account. But I wouldn’t do it just for the interest rate. Three percent of nothing is nothing. You’re not going to get rich off the interest from a high-yield savings account.

Good question!

— Dave