Posted by Ever wondered why your mortgage rate goes up when you choose to pay property tax and homeowner’s insurance on your own? Oftentimes, clients like to pay tax and insurance bills on their own however the rate on their home loan increases when they do so.
Impounding Taxes and Insurance in Your Home Loan Payment
Homeowner’s figure paying taxes and insurance allows them to keep more money on hand. Putting that money in interest bearing accounts until tax and insurance bills are due creates a little extra income. Makes sense right?
Guess who has the EXACT same thought process? Lenders. By not giving lenders a few extra bucks in the form of tax and insurance payments every month they lose anticipated revenue on your home loan. As a result, lenders adjust your interest rate to make up for that loss.
Are Arizona Buyers Getting a Raw Deal?
Many Phoenix area buyers are quick to shout an emphatic “YES” to this question. However, there is a different perspective that results in an equally emphatic “NO”. Mortgage lenders give borrowers the choice to get a lower mortgage rate by including tax and insurance payments into their monthly home loan payment. In other words, lenders pass on the income earning opportunity to Arizona home buyer by lowering their interest rate when taxes and insurance are impounded.
What would be “wrong” is if lenders gave you the same interest rate regardless of impounding taxes and insurance. If they did that, guess which rate all buyers would get? You got it! A higher rate.
By Jeremy House