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Paying Your Taxes With Escrow Funds: The Pros and Cons

Majority of the people would consider taxes as extra burdens. However, there are people who see taxes as their contributions in making society a better one, to boost the existing services through the proper allocation of funds by the government. Taxes have been levied in order to help improve the services of different establishments and this will also in turn be very beneficial to all the consumers. As consumers, it is just right that people pay the needed taxes as honestly as possible.

Escrow is a term that is very popular among buyers and sellers alike. For lenders, this is also a very common term being used. What exactly is escrow and what does it entail? The term "escrow" is actually an account where funds, deeds, or any other type of instrument are deposited by one party, which will then be given to another party once all of the needed things have been completed. For people who wish to loan money for their mortgages, the lenders would put up escrow accounts for their clients. Until the payments have been completed, the funds are held in place. Only when the transaction is complete will the account be transferred to another party. This cannot be done before all payments have been made.

When a home owner pays for his mortgage, part of the payment he or she gives goes into the escrow account (usually opened by the lender). Escrow accounts are usually put up by lenders as a way of making sure that their transactions are secure. It is true that there are some consumers who may not pay their annual estate taxes, which could very well ruin or jeopardize the credibility and the security of the lender. So, as a safeguard to these things, escrow accounts are made to make sure that all payments are made before any transfer (of property, money, or any other instrument) occurs. Lenders would usually take out the payments for insurance bills or taxes from the escrow accounts.

Having escrow accounts may also entail a lot of advantages and disadvantages. This is what consumers usually ask financial experts. Using escrow accounts to pay taxes could prove to be very convenient, especially to the consumers. The consumers do not have to worry about paying their taxes separately as the lenders will be the ones to take care of the tax-paying (most of the time). Consumers also do not have to worry about making delayed payments, as the firms or the lenders are the ones who take care of them. They do not suffer any penalties or negative consequences. Consumers are also not forced to pay the full amount at just one time, but rather, a series of payments is given throughout the entire year.

When there are advantages, there are also disadvantages. One disadvantage of having an escrowed account is that the lenders have all the freedom to use the funds in the accounts for their own benefit. Many experts even say that many of the lenders actually earn a lot from the escrow accounts. Another disadvantage could be rigidity of the laws that encompass the use of escrow accounts. Majority of the time, consumers are not allowed to waive the escrow, as per agreement done with the lenders. Any changes regarding the payments may also be changed without further notice, so people should communicate well with their lenders all the time.

People have to weigh the pros and cons of things before they decide whether they wish to have escrow accounts or not. Many of the lenders would offer no other choice for the home owners, which is why the people simply have to give in to what the lenders say. People, as a precaution, therefore, should pay attention and should transact only with legitimate and licensed escrow companies.