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Should I pay my home insurance through escrow?
I’m a first-time homebuyer in the process of signing all my documents. I’m struggling to understand all the terminology of home insurance. I’m wondering, should I pay home insurance through escrow or pay it directly?
Sadie Lovemore · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Congrats on buying your first home! Paying your home insurance through escrow can be a wise decision, especially if it reduces your interest rate.
Since you’re going to be taking on many new responsibilities as a first-time homeowner, an escrow account can make life a bit easier by automating your payments.
Escrow accounts are set up by mortgage lenders during the process of buying a new home to set aside expenses like
home insurance
and property taxes. These expenses are built into your mortgage payment, so you don’t have to worry about late fees or putting the money aside yourself.Here are some pros of paying your home insurance through escrow:
- It’s convenient. If you’re the type of person who loves automated payments and less tracking, then an escrow account might be the best option for you.
- Lower interest rates. Your mortgage lender may give you lower interest rates or cut initial closing costs to incentivize you to pay through escrow. This alone could save you thousands.
There are a couple of cons, however:
- Higher closing costs. This may sound counterintuitive if your lender is giving you a break on initial closing costs, but they’ll need to pay a third-party company to set up the escrow account and take care of other administrative fees.
- Less liquidity & control. You might pay a little bit more than the cost of your bills into escrow, just so that your lender is assured that the expenses will be covered. This is still your money until it’s in the hands of the insurance company or IRS, but it’s not sitting in your personal account anymore, so you have less control over those funds.
What you pay for your home insurance is just as important as how you pay, so make sure you’re getting a good deal with super app
Jerry
. If you’re looking for a new insurance company, Jerry can provide you with competitive quotes in under a minute. Swapping is just as effortless. Jerry takes care of all the paperwork and phone calls and can even assist you in canceling your old policy!
View full answer
- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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