Friday, March 14, 2008

Keep Your Money in Your Pocket (Until the Tax Man Comes A'Knockin')

Geez, I promised a post on impound free mortgages and never delivered! An impound free mortgage is where you DO NOT escrow your taxes every month with your mortgage company. With the crackdown on lending practices, these may be more difficult to get, but here's how it works:

Instead of adding 1/12th of your yearly taxes to your monthly payment to your mortgage company, and having them pay the tax bills out of the money they've collected, YOU will be responsible for paying the tax bills as they come due.

What are some advantages?

  • Your money earns interest for you. It does not earn interest when you pay it to the mortgage company every month.
  • You have some flexibility with your monthly payment. This can benefit you if you have a commission based business, or get yearly bonuses. Put away a chunk of it at a time, let the money earn interest all year until the tax bill is due, and reduce your monthly payment.

You absolutely MUST be vigilant in saving your money to pay your taxes. There is no forced savings plan (a benefit of paying it with your mortgage). So, if you have even the slightest doubt about your ability to save the money in order to have it on hand at tax time, I would advise against this.

Nothing like a $6,000 tax bill, and no money to pay for it, to ruin your day.

Want more information? Shoot me an email and I'll be happy to better explain tax escrows as they relate to your mortgage payment!

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