Personal Finance Advice and Education! (2 Viewers)

[-OZ-]

Thanks @guru_007. 

Now, dumb question. How do you get out of doing escrow? 

 

[guru_007]

Thanks @guru_007. 

Now, dumb question. How do you get out of doing escrow? 

Should be at 20%+ equity in the house.  Lenders are different and some are a pain the ### about waiving the escrow requirement if you are close because lets face it, why would they just give away free money?  

The question of whether to escrow or not is simply a math question in my eyes and i'm purely a math guy. I know some people like to escrow because they figure it's a budgeting tool.  Same people like getting tax refunds at the end of the year or paying off their mortgages early.  I'm kind of black and white when it comes to these questions.  While I will admit there is a psychological advantage to 'peace of mind', I'm unwilling and unable to put a dollar amount on this alleged peace of mind.  But again, after the third or fourth escrow analysis by my lender came up wrong as usual, I said enough of this, it's my money, I'll take care of it.

 

[wilked]

I'm only just looking into it and was considering a preferred stock etf. Just curious why you went with bonds. There is a slightly higher risk as bonds hold a higher spot on the totem pole if a company goes bankrupt but in a fund it's less of a concern over an individual company bond/preferred stock. Practically double the yield seems like it's worth the slightly higher risk.

corporate bonds are a better investment than preferred stock.  If you compare the two on a risk-return basis the bonds win out.  I wouldn't advise anyone to invest in pref stocks personally

 

[-OZ-]

Should be at 20%+ equity in the house.  Lenders are different and some are a pain the ### about waiving the escrow requirement if you are close because lets face it, why would they just give away free money?  

The question of whether to escrow or not is simply a math question in my eyes and i'm purely a math guy. I know some people like to escrow because they figure it's a budgeting tool.  Same people like getting tax refunds at the end of the year or paying off their mortgages early.  I'm kind of black and white when it comes to these questions.  While I will admit there is a psychological advantage to 'peace of mind', I'm unwilling and unable to put a dollar amount on this alleged peace of mind.  But again, after the third or fourth escrow analysis by my lender came up wrong as usual, I said enough of this, it's my money, I'll take care of it.

Why does 20% equity matter with escrow? We're a ways away from that still, our VA loan is only 2 years old.

 

[guru_007]

Contact lender

Why does 20% equity matter with escrow? We're a ways away from that still, our VA loan is only 2 years old.

 

[eoMMan]

Where are you guys putting cash? I've seen online banks up to 1.5% and now AMEX has offered 1.35% with no fees and direct link to bank accounts for easy access.  No minimum. Have too much earning next to nothing at B of A.

I have a money market savings account with Synchrony Bank that pays 1.4% or so. It was 1.25% and I think got recently bumped up. It's all online but I get paper statements mailed and I have a debit card as well. Another awesome feature they do is refund a certain amount of ATM fees each month. I forget the amount but yeah....they rock.

 

[Chadstroma]

What type of fees does a bank like Chase charge to deposit and withdraw from an online bank?

You should be able to do online bank transfers at either institutions online banking and it shouldn't cost anything. Heck, you can send money to other people from online banking to their accounts with no charge with services like Pop Money and Zelle.

The biggest question is why on earth would you want to deal with Chase to begin with?

 

[Chadstroma]

Does anyone avoid escrow? We paid over $5k in escrow last year which only paid out about $3k, leaving $2k to carry over but we don't get it refunded. I guess it just stays with the bank in case it's needed? Haven't seen if they reduce the amount this year yet. 

I don't escrow for a couple of reasons:

1) No control over your money

2) No interest on that money sitting around waiting to pay taxed and insurance

3) If escrow is short, you have to come up with money you didn't expect to

Over the last few years still digging out of the Great Recession that hit our household fairly rough it has been sometimes hard to come up with taxes but still- I wouldn't escrow as long as I have the choice.

 

[Chadstroma]

Thanks @guru_007. 

Now, dumb question. How do you get out of doing escrow? 

Contact lender and ask. You may or may not have to pay for an appraisal. Might not be worth it.

 

[dino259]

I don't escrow for a couple of reasons:

1) No control over your money

2) No interest on that money sitting around waiting to pay taxed and insurance

3) If escrow is short, you have to come up with money you didn't expect to

Over the last few years still digging out of the Great Recession that hit our household fairly rough it has been sometimes hard to come up with taxes but still- I wouldn't escrow as long as I have the choice.

The state of Wisconsin sets a mandatory interest dividend on escrow accounts.  The rate is reset every year.  We do not escrow.  Last year's escrow divident rate was higher than what we were able to get on a 12 month smart saver CD.  12 month smart saver CD is a CD you can add deposits to at any time.  You can with draw funds penalty free at maturity or anytime during the month of December.

Do other states not have an interest dividend on escrow accounts?

Lenders most likely require escrows because the general population is not disciplined enough to save money for taxes.

 

[dino259]

Contact lender and ask. You may or may not have to pay for an appraisal. Might not be worth it.

you may need to refinance and you may need to pay a fee to not have to escrow.

 

[Tiger Fan]

How much do you have in investible assets?

For those that have a good chunk of change saved up- going to a good Private Bank/Wealth Management is a good option. Typically flat fees and they are under a fiduciary duty to look out for your best interests and not sell products. A place like Edward Jones does not have an fiduciary duty. Plus, they bring to bear a team of experts that if you 'lack knowledge/understanding' can be a HUGE help. Lawyers, CPA, MBA, SWAT teams members.... I mean, they can have it all. And help you manage the full financial picture for you.

Each organization has it's own $$$ requirements. My bank will work with as little as $75K in investible assets. I have seen some that required as much as a million though (typically, the bigger the bank the bigger their requirement because otherwise you are too small for their time and effort).

Are these private/wealth mgt firms suggesting different types of investments than a Vanguard/Fidelity would have?  Like local business investments or different types of bonds?  Just spitballing here....

 

[Chadstroma]

Why does 20% equity matter with escrow? We're a ways away from that still, our VA loan is only 2 years old.

Lenders require escrow when loan amounts are more than 80% of value due to risk. The closer to how much you owe being the worth of the house the more risk there is to the bank. If you escrow then the lender is managing the risk of you not paying your insurance and taxes (both could cause loss to the lender if not paid). If you have more equity then you are more compelled to pay your taxes and insurance and worst case if the property needs to be sold to pay taxes it will cover the loan and taxes.

 

[Chadstroma]

The state of Wisconsin sets a mandatory interest dividend on escrow accounts.  The rate is reset every year.  We do not escrow.  Last year's escrow divident rate was higher than what we were able to get on a 12 month smart saver CD.  12 month smart saver CD is a CD you can add deposits to at any time.  You can with draw funds penalty free at maturity or anytime during the month of December.

Do other states not have an interest dividend on escrow accounts?

Lenders most likely require escrows because the general population is not disciplined enough to save money for taxes.

Never heard of this before. I think it is a unique thing to Wisconsin.

 

[CR69]

Never heard of this before. I think it is a unique thing to Wisconsin.

Oregon does this as well. It's actually fairly common.

"The states that do require interest payments on escrow accounts are: Alaska, California, Connecticut, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Oregon, Rhode Island, Utah, Vermont and Wisconsin. There are legal exceptions that may preclude a bank from paying interest."

https://www.investopedia.com/ask/answers/042115/do-mortgage-escrow-accounts-earn-interest.asp

 

[Chadstroma]

Are these private/wealth mgt firms suggesting different types of investments than a Vanguard/Fidelity would have?  Like local business investments or different types of bonds?  Just spitballing here....

They have a whole world of things open that you are not going to get on Vanguard/Fidelity. It is not like going to a financial advisor and they say 'pick this mutual fund and that one', they would be tailoring your needs/wants and specific situation.

 

[-OZ-]

you may need to refinance and you may need to pay a fee to not have to escrow.

 I'm not going to refi. From what I see the current rates are higher on every set (10, 15, 30 year) than my 3.25 or at least close enough where it's not worth while.

Lenders require escrow when loan amounts are more than 80% of value due to risk. The closer to how much you owe being the worth of the house the more risk there is to the bank. If you escrow then the lender is managing the risk of you not paying your insurance and taxes (both could cause loss to the lender if not paid). If you have more equity then you are more compelled to pay your taxes and insurance and worst case if the property needs to be sold to pay taxes it will cover the loan and taxes.

Would think they could just check assets and credit for that. May call lender just to see if they can work with us.

 

[Chadstroma]

.Would think they could just check assets and credit for that. May call lender just to see if they can work with us.

Everyone thinks mitigating risk is such a pain when it causes them issues and then when all hell breaks loose because risk was managed correctly everyone wonders what the hell they were doing not managing risk.

 

[Steve Tasker]

Where are you guys putting cash? I've seen online banks up to 1.5% and now AMEX has offered 1.35% with no fees and direct link to bank accounts for easy access.  No minimum. Have too much earning next to nothing at B of A.

I've used Ally for years and have nothing but positive things to say about it.  Their online chat help function works great.  The rate on savings is 1.35% right now, on-par with the online bank industry.  Wife and I also have our joint checking account there.

 

[jamny]

corporate bonds are a better investment than preferred stock.  If you compare the two on a risk-return basis the bonds win out.  I wouldn't advise anyone to invest in pref stocks personally

I'm all ears. Even if it's not an individual stock but in a fund?

 

[fred_1_15301]

Ally and Capital One are pretty popular. I've been at CapOne from when it was ING Direct. I think they're up to 1.5% now. Online banks are great if you are OK with potentially waiting 3 days for a transfer to hit your checking account. I keep everything over the current months expenses with them.

Why not just create a Capital One checking account?  That's what I do.  ATMs all over the place (dunkin donut, CVS, 7/11, etc.)

ETA - Nevermind.  I read your post wrong.  I thought you were saying it takes 3 days to transfer your money into another checking account

 

[wilked]

I'm all ears. Even if it's not an individual stock but in a fund?

It's better understood written by a pro.  This is a good link

https://www.cbsnews.com/news/why-you-should-avoid-preferred-stocks/

The key to it is the "asymmetric risk" - "you get the risk of a long-duration product when rates rise, but the call feature puts a lid on returns if rates fall."

If you want exposure / return of stocks, buy a stock index.  If you are looking for fixed income buy bonds

 

[Brony]

It's better understood written by a pro.  This is a good link

https://www.cbsnews.com/news/why-you-should-avoid-preferred-stocks/

The key to it is the "asymmetric risk" - "you get the risk of a long-duration product when rates rise, but the call feature puts a lid on returns if rates fall."

If you want exposure / return of stocks, buy a stock index.  If you are looking for fixed income buy bonds

so after they #### all over preferred stocks, they don't suggest a specific alternative investment.  :thumbsdown;

 

[Brony]

+1 on no escrow.  Less worried about that smidge of interest I'd be losing, but I got irate when I got my monthly number adjusted without good rationale.  The months where the tax bill arrives does sting no doubt about it, but it gives me better visibility to property tax changes and prompts me to get them re-assessed. 

 

[jamny]

It's better understood written by a pro.  This is a good link

https://www.cbsnews.com/news/why-you-should-avoid-preferred-stocks/

The key to it is the "asymmetric risk" - "you get the risk of a long-duration product when rates rise, but the call feature puts a lid on returns if rates fall."

If you want exposure / return of stocks, buy a stock index.  If you are looking for fixed income buy bonds

Interesting article and definitely highlights some of the lesser known risks but wouldn't a fund like PFF, with over 300 holdings, be distributed and diluted enough to make the risk worth the increased yield?

 

[Dentist]

Interesting article and definitely highlights some of the lesser known risks but wouldn't a fund like PFF, with over 300 holdings, be distributed and diluted enough to make the risk worth the increased yield?

If we crash pff will dive hard.  If interest rates spike, it dives. Otherwise pretty safe. I have used it before

 

[ex-ghost]

I'm paying taxes and insurance out of escrow, and I'm pretty sure I'm getting interest on the money they're holding for me. I'll have to double check when I get home. In CA.

I think (getting old) that I asked my credit union if I could pay escrow on my own, I think they said it would add 1/4% to my loan if I paid on my own. Does that make sense?

 

[Chadstroma]

I think (getting old) that I asked my credit union if I could pay escrow on my own, I think they said it would add 1/4% to my loan if I paid on my own. Does that make sense?

No.

Escrow is just paying your taxes and insurance. Your taxes are based on your property value and not your loan amount. Insurance is based on your coverage.

 

[dino259]

No.

Escrow is just paying your taxes and insurance. Your taxes are based on your property value and not your loan amount. Insurance is based on your coverage.

but the option of escrowing or not escrowing depends on the loan program.  I believe loans that are designed to be sold to FNMA or FHLB require you to escrow and that you would have to pay a quarter point to opt out.

 

[Chadstroma]

but the option of escrowing or not escrowing depends on the loan program.  I believe loans that are designed to be sold to FNMA or FHLB require you to escrow and that you would have to pay a quarter point to opt out.

I misread what the question was. I thought he was saying that they told him if he paid on his own it would be .25% which would make no sense. Yes, there are tons of loan programs out there and it is just better to pick up the phone and call to say "Hey, can I not pay via escrow" and go from there .

 

[wilked]

Interesting article and definitely highlights some of the lesser known risks but wouldn't a fund like PFF, with over 300 holdings, be distributed and diluted enough to make the risk worth the increased yield?

You can compare individual corporate bonds vs individual preferred stock as well as bond funds vs preferred stock funds. I think the general points in the article hold though, you don’t change the underlying properties of it via a fund. 

 

[Binky The Doormat]

Why go with a bond fund over a preferred stock fund?

Mostly because I have a much smaller allocation in bonds in my retirement accounts than recommended and this gives some diversification. I'd say less risk but I'm not sure that's entirely true, could just be perception. 

What preferred stock funds would you recommend? Just looking at PFF, 5.58% yield is nice,  the fund is selling at it's 52 week low, and the price really hasn't moved much in 5 years. Maybe it is a safer bet than I thought.

just depends on what you are trying to do with that part of your portfolio.  Both can be appropriate.  

comparison article.

 

[Andrew74]

Interesting article and definitely highlights some of the lesser known risks but wouldn't a fund like PFF, with over 300 holdings, be distributed and diluted enough to make the risk worth the increased yield?

It’s been a while since I looked under the hood at PFF, but it used to be predominately financials. There was a meaningful sector concentration. I’d guess more so now after the oil crash wiped out a lot of the energy firms that issued pfd stock. 

Preferreds come in so many different stripes you gotta know what you are getting. 

 

[Sand]

Why go with a bond fund over a preferred stock fund?

Duration (many preferreds are perpetual), counter party dependability (the US govt. is pretty dependable, companies not as much).

 

[-OZ-]

It’s been a while since I looked under the hood at PFF, but it used to be predominately financials. There was a meaningful sector concentration. I’d guess more so now after the oil crash wiped out a lot of the energy firms that issued pfd stock. 

Preferreds come in so many different stripes you gotta know what you are getting. 

I opted to put half my car fund in PFF today. We'll buy sometime in early 19, so just looking to make an extra $500 or so. 

 

[ex-ghost]

No.

Escrow is just paying your taxes and insurance. Your taxes are based on your property value and not your loan amount. Insurance is based on your coverage.

My memory must be muck. I did contact them today and there is no fee to pay my own insurance and taxes. Going at it on my own.

 

[ex-ghost]

I misread what the question was. I thought he was saying that they told him if he paid on his own it would be .25% which would make no sense. Yes, there are tons of loan programs out there and it is just better to pick up the phone and call to say "Hey, can I not pay via escrow" and go from there .

Correct, was not saying it would cost me .25% to pay on my own.

 

[Sand]

It’s been a while since I looked under the hood at PFF, but it used to be predominately financials. There was a meaningful sector concentration. I’d guess more so now after the oil crash wiped out a lot of the energy firms that issued pfd stock. 

Preferreds come in so many different stripes you gotta know what you are getting. 

PFXF is a fund that excludes financials.

 

[CR69]

My memory must be muck. I did contact them today and there is no fee to pay my own insurance and taxes. Going at it on my own.

When you're going through the process of purchasing or refinancing, lenders will typically include a .25 basis point adjuster on the rate for not having any impound account. I've never seen it actually be a quarter of a percent increase in the rate though. So your memory is fairly accurate.

 

[-OZ-]

Does anyone avoid escrow? We paid over $5k in escrow last year which only paid out about $3k, leaving $2k to carry over but we don't get it refunded. I guess it just stays with the bank in case it's needed? Haven't seen if they reduce the amount this year yet. 

So we did get a $1300 check today out of escrow. Conveniently, that's exactly the down payment on our vacation next fall. 

And our except went down from over $500 to $260.  This is probably because the county taxes primary residence at half the rate of other property and we just bought the home and got the exception filled last year. 

So my wife wants to keep paying the same amount we have been and pay the house off quicker. I'm telling her I want to build our accessible funds a little more (we have about $30k readily accessible).

 

[NutterButter]

I got an escrow check last year when my property taxes went down a lot b/c they privatized a big hospital in my town.   It was a double win.  

 

[Chadstroma]

So my wife wants to keep paying the same amount we have been and pay the house off quicker. I'm telling her I want to build our accessible funds a little more (we have about $30k readily accessible).

Which means you will compromise and pay the same amount to pay the house off quicker.

 

[-OZ-]

Which means you will compromise and pay the same amount to pay the house off quicker.

Actually we compromised, round up to the next $250, which is about $200 less than we're paying now, then when our funds get to the right amount, jump it a lot. 

The right amount is the amount it will take to make a down payment on a cabin she wants. Plus the used car I want, plus the emergency fund.

Yeah, she gets a cabin, I get a used Honda/Toyota.

 

[BeTheMatch]

Where are you guys putting cash? I've seen online banks up to 1.5% and now AMEX has offered 1.35% with no fees and direct link to bank accounts for easy access.  No minimum. Have too much earning next to nothing at B of A.

CIT bank's (not Citi) has a decent rate on its high-yield savings. Think it's up over 1.5% now and will automatically increase as their rates go up.

 

[Chadstroma]

Actually we compromised, round up to the next $250, which is about $200 less than we're paying now, then when our funds get to the right amount, jump it a lot. 

The right amount is the amount it will take to make a down payment on a cabin she wants. Plus the used car I want, plus the emergency fund.

Yeah, she gets a cabin, I get a used Honda/Toyota.

Wow. You must be Jedi Master level husband waiving your hand around. That is some amazing results.

 

[Judge Smails]

How much money we talking? 

Let’s just say it’s $20k...chasing banks to get an extra 0.5% nets me $100/yr.   in the end that’s not enough to get my #### hard. 

100K. Agree it's not a ton but F B of A and their rates. Insulting 

 

[wilked]

$100k is real money. The next question might be why you have $100k in cash, but I am sure you have your reasons...

 

[Binky The Doormat]

$100k is real money. The next question might be why you have $100k in cash, but I am sure you have your reasons...

the market can go down.  

 

[Long Ball Larry]

401k allocation question.  I am currently 38 and have had the same allocation for many years:

20% Growth

10% Growth-and-income

15% Equity Income

30% Balanced

25% Bond

I am wondering if I should be more aggressive with this?  Thoughts?

So I switched the above portfolio to the following at the beginning of last year: 40% growth, 35% growth and income, 20% Equity/Balances, 5% Bond

That certainly has worked out well.

It seems like a great market correction could be coming over the course of this year (?)  Is there any reason to think about re-balancing to something more conservative for now, or is that more of a pointless attempt at market timing that over the long haul would be inconsequential or even a negative? 

 

[bcnfinance]

So I switched the above portfolio to the following at the beginning of last year: 40% growth, 35% growth and income, 20% Equity/Balances, 5% Bond

That certainly has worked out well.

It seems like a great market correction could be coming over the course of this year (?)  Is there any reason to think about re-balancing to something more conservative for now, or is that more of a pointless attempt at market timing that over the long haul would be inconsequential or even a negative? 

I’d say rebalance to where you were beginning of last year.