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As parents you always hate to be the ogre saying: “You don’t need that.” So you just sit there and spend your money, but this made them do it themselves and it was fun for them, because it turned into kind of a game — with all of them looking for coupons and special deals when it was their turn to pay.

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​Taken from the book entitled, Make No Mistakes About Buying Real Estate.When the borrower makes a mortgage payment to the lender, the principal and interest go directly to the lender to pay off the note. The taxes and insurance segments go into an account known as an “escrow” or “reserve account” until the property tax and insurance bills are due. These bills are typically due annually or semi-annually. At that time, the escrow agency simply deducts the appropriate amount of money from the escrow account and pays the bill. This way, the borrower doesn’t have to come up with a large sum of money to pay real estate taxes and the insurance bill. Mortgage escrow accounts are a good idea for most borrowers. Fortunately, in many cases, they’re mandatory. These escrow accounts decrease the number of foreclosures due to unpaid taxes and insurance. Homeowners who choose not to escrow often get into trouble – if they are not honest with themselves, and do not save aside the money for the taxes and insurance.    To assure that there will always be enough money in the account, lenders ask for more than they actually need as a cushion, or “reserve.” If the taxing authority or the insurance provider raises the rates, the lender doesn’t have to come to the borrower for the difference. The lender simply dips into the reserves, which is the extra money sitting in the account to pay your taxes and insurance bill for the year. At closing, lenders typically require two to four months’ equivalent of taxes and insurance to set up this escrow account.  They are collected from the borrower at closing in the form of prepaids.Can You Avoid Paying into Escrow?Yes. Here’s how:Contribute 20% as your down paymentFind a second lender who will take on a second note to reduce the risk for the primary lenderIt’s important to consider, however, all the ramifications of not paying into escrow. For one thing, borrowers usually pay ¼ to ¾ points higher interest rates if they don’t pay into this monthly escrow account.There are two big advantages we see to not escrowing:You pay less at closing because you don’t have to pay the required prepaids, i.e., the two to four months of taxes and insurance premiumsYou pay less every month because you only pay the principle and interest to your lenderBorrowers who choose not to escrow now have one or two big tax payments during the year that they must pay on their own. This usually means saving money each month to make these big payments when they’re due. For some people, that’s not a problem. A borrower can also make separate arrangements to pay his or her insurance premiums directly to the insurance carrier, often on a monthly basis once the first year has been paid in advance. If you’re an expert saver, choosing to not escrow might work for you.The downside to all of this is we’ve seen too many people with good intentions not have the money to pay their taxes on time. The annual or semi-annual tax payment is usually due toward the end of the year, often during the holidays, which is an expensive time of year anyway. Not paying a tax bill is serious business. Interest and fines accrue on unpaid tax bills, and eventually a tax lien could be placed on the property. Everyday, borrowers lose their property in auction sales for as little as the back taxes due. A mortgage escrow account is an easy, worry free way to manage your tax payments and insurance premiums.