It makes the monthly payment considerably higher, and maybe they think they’ll lose business to people going to other banks? I don’t know. I do know that they were relentless in getting me to provide proof of insurance every year (especially flood). And very bad a realizing that I had already done so each and every frickin time.
Yes, it is easier. I think some people want to be “in control” of paying these things, and perhaps want to hold on to their money until the bill comes due. Maybe a general distrust of banks.
I’ve never heard that escrow was an option and not mandatory. About the only thing that has higher rights to seize your property than a bank foreclosure is a tax lien foreclosure and the bank then ends up with nothing except a debt it will never collect on.
I’ve had at least seven mortgages and in all except the last one it wasn’t escrowed. I didn’t like the idea or the bank holding my money in advance or that they always tried to force it on me. The most recent mortgage is escrowed because it was mandatory and I took it because it was a ridiculously good post Covid rate.
I’ve had three or four mortgages and none of them required escrow for insurance . One had it for property taxes - and it turned out not to be easier because they screwed up and paid late at least once.
Seems strange to me. Why would the note holder not want to protect their asset? Hell, you can’t finance a car without having to have collision and comprehensive and those are worth a lot less than a house.
There’s a good chance the bank wouldn’t want to foreclose for that small percentage and would rather you find a way to finance what you owe through a reverse mortgage or other vehicle. You could fight a foreclosure in court also. I don’t know if you could do better there than a judge giving you time to finance the remaining debt before allowing a foreclosure.
Do you have any other assets of value like insurance policies or pensions? Can you sell a piece of your property? You want to avoid encumbering your property in a way that doesn’t allow you access to the rest of your equity should you or Mrs. H need it someday so any kind of loan you may not be able to repay is not a practical approach.
I didn’t say I didn’t have to have the coverage - I just paid the premium myself rather than through escrow. Just like my car loans required collision and comprehensive coverage - for which I paid the premiums myself.
I assume in both cases insurance company notifies the lender if the insurance lapses. I just recently had to provide the HELOC lender proof of insurance because the policy ending date is in September. I believe there is also a provision that if I let the insurance lapse, they can put a new policy in place and at that point it will become an escrow situation.
I haven’t had escrow as part of my mortgages for good long while. Early 2000s at least. My understanding is that if I am late on my payment, the notifications come to me and the lien holder but I’ve never tested that theory.
I prefer to manage my own payments and keep the money in my own account for a couple reasons. Twice in the 90’s, my lender screwed up the escrow amount up by a significant amount, once requiring me to cough up an inconvenient amount or short notice, and another where despite my protests, they had me overpay for several months.
My brother-in-law really got screwed back in (I think) the early 2000s. I dimly recollect the issue, but it had to do with some sort of legal challenge to the property valuation methods Indiana (or maybe just his county) were using at the time. The net of it was that tax payments were uncertain for a unexpectedly long while and his bank grossly over estimated what the worst case total amount would be and it was an extremely difficult time for him.
They absolutely require you to have insurance coverage and you have to send them proof annually. If you don’t have coverage they will get coverage for you and charge you for it and it will be more expensive than what you can get on the market.
IIRC my understanding is the difference between a second mortgage and a HELOC is that the former is an enumerated mortgage - fix amount paid out at once, specific repayment terms usually monthly. The HELOC is just that - a line of credit. you take out as much or as little as you want at any time (to your limit). Interest accrues on the balance - usually - added to the account. You can pay into it any amount any time.
My mortgages, IIRC required proof of insurance, but also I vaguely recall that the insurance listed them as the first to get paid in certain circumstances (i.e. house is a write-off, not going to rebuild) and also the insurance agent or company(?) was required to notify them if the insurance lapsed. In fact, I’ve never had to update proof of insurance, but I’ve never changed insurance agency. (The agency has changed coverage providers for what they sell me)
With one mortgage, the bank paid the property taxes, in another, I had to arrange automatic withdrawal for the municipality myself. I assume the concern is because the govrnment has first dibs ahead of any mortgage holder if foreclosed for taxes?
Both HELOCs and home equity loans ( where you get a certain amount at once with usually fixed monthly payments) are mortgages (which really just means a loan that involves a lien against real property). Technically , it’s only a second mortgage if there is a previous mortgage that still exists- the HELOC I used to pay off my mortgage was not a second mortgage.
Po-tay-toe, to-mah-toe… same thing only different.
I had never heard of a HELOC until I built the house I live in now (although second mortgages were familiar from even old stories of the evil bankers in the old west…Or Auntie Agatha being threatened by a mustachioed evil banker…). We started with a HELOC because the process of building required gradual payments, as did the gribbly bits like landscaping, etc. It was just more convenient to continue that way. We converted to mostly a real mortgage after about 5 years to take advantage of about 1% interest difference, but were given the HELOC as an additional piece for future expenses. I suspect that sort of like the Well-Fargo scandal, our bank rep was given some sort of recognition on how many accounts were created. Now that the house is paid off, the HELOC is our “primary mortgage” but currently zero balance. If we decide on a fancy vacation or other extravagance, we can use it instead of dipping short term into savings.
You could take out a loan for a thousand dollars, on a million dollar mansion, and if you don’t pay, the bank profits when they foreclose.
It may vary by state, but I think the bank is obliged to give you the difference, if they sell the place for more than you owed on the loan, also minus penalties / fees etc. But the bank has no incentive to try to maximize the sale price, they want their own money back. So they might sell the place for a lot less than a free market sale might get.
In your case, assuming you’re past a certain age, you might be a candidate for a reverse mortgage. Those aren’t paid back until you and your spouse are both gone (either dead, or moved out). They typically aren’t the best, financially; the fees can be high and so on, but depending on why you are asking this, it’s possible it might be the right thing for you.
I got a HELOC from my credit union in the late 90s because I was told that it was important to have just in case or some bullshit. They had a fucked up rule that you had to take out something like $10k right away and keep it for 30 days and then could pay it back immediately and have no interest. Then I didn’t use it for several years and when I had to refinance after the divorce it cost us a fee of like $500 for the privilege.
I think it was a policy rather than a law. The hope is that the money would be burning a hole in my pocket and I’d spend some of it and then owe interest.