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What Should I Pay First: Mortgage or Escrow?


Your mortgage is undoubtedly one of your biggest and most important bills. Many mortgage companies include payments to the escrow payment with your mortgage, so you may not realize it’s there. For lenders that bill separately, you may have the option to put any money over the amount of your payment on either your escrow or the mortgage principal. It’s up to you what you pay first, but make sure you know the facts before you decide. This post will help you do so.

What Is the Principal?

The principal of your mortgage is the actual loan amount. Much of what you pay for the first several years is interest. If you make a payment that’s over what you owe for the month, you can apply the extra to the principal amount. This lowers the amount you owe, which will lessen the amount of interest you are required to pay over the lifetime of your mortgage. Paying a little extra each month and directing it toward the principal can significantly shorten the length of your loan if you maintain the higher payments.

What Is Escrow?

The escrow account is separate from your actual mortgage payment. An escrow account holds funds that have been set aside for additional expenses such as property taxes, homeowners’ insurance, or any fees that may need to be paid at a later date. While you can add money to your escrow account at any time, it won’t do anything toward lowering the actual amount of the principal. Your escrow funds may sit in the account for a long time without ever being touched.

Which Is More Important?

Both the principal and your escrow account are important. It’s a good idea to pay money into your escrow account each month, but if you want to pay down your mortgage, you will need to pay extra money on your principal. The more you pay on the principal, the faster your loan will be paid off. Choosing which one to make an additional payment on is up to you. Take the time to consider which one is more beneficial, and then make your payments accordingly.

Determine Your Best Interests and Pay According to Your Needs

There are benefits to paying extra on both accounts. Padding your escrow account is a good idea if you have an adjustable-rate mortgage that will allow your interest rate to go up. On the other hand, paying on your principal will pay off your loan much quicker and build equity in your home. Both have advantages. It’s up to you to determine which one best suits your needs and then pay accordingly.

Understanding how your mortgage and escrow accounts work is a must if you plan on managing your money wisely. Our professionals at Brighton Escrow, Inc. are available to discuss your options with you and help you make the right decision. Call today to talk to one of our professionals and get all the answers you need. Our team has years of experience and can guide you through the escrow process.

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