How to Get Rid of Your Mortgage Escrow Account (2024)

You might be able to remove your mortgage escrow account and pay property taxes and insurance on your own.

Mortgage lenders often require borrowers to have an escrow account. With this kind of account, you pay a few hundred dollars extra every month on top of your mortgage payment of principal and interest. The servicer keeps this extra money in the escrow account until your property tax and homeowners' insurance bills are due. It then uses the money to pay those expenses on your behalf.

Some borrowers like the ease of having an escrow account. By paying a little bit each month, they can avoid worrying about paying large amounts when the tax or insurance bill comes due.

But if you prefer to pay these bills on your own, you might be eligible to remove the escrow account from your mortgage. You'll have to meet specific criteria depending on your loan type.

What Does Escrow Mean for a Mortgage?

First, let's clearly define "escrow" in the context of mortgage accounts. This kind of escrow is something different than when you bought your home. That kind of escrow is when a neutral third party holds funds, such as earnest money, or documents before closing the sale.

On the other hand, with a mortgage escrow account, you have to pay the servicer a certain amount each month to cover property taxes, homeowners' insurance, and (sometimes) private mortgage insurance and homeowners' association dues. These items are collectively called "escrow items."

The servicer then pays those expenses as the bills come due. Having an escrow account ensures that your taxes, insurance premiums, and the like are paid on time and in full.

How a Mortgage Escrow Account Works

The servicer collects escrow funds, along with the principal and interest, as part of your monthly mortgage payment. Approximately one-twelfth of the estimated annual cost of taxes and insurance is paid into the account each month out of your monthly mortgage payment.

The servicer might also collect a cushion, usually two months' worth of escrow payments, to pay for unexpected cost increases.

Your Loan Might Require an Escrow Account

Many lending institutions require escrow accounts for specific types of loans.

Federal Housing Administration (FHA-Insured) Loans

You must have an escrow account if you have a loan that the Federal Housing Administration (FHA) insures. The FHA requires that lenders making FHA-insured loans establish escrow accounts for those loans.

Veterans Administration (VA-Guaranteed) loans

The Veterans Administration (VA) doesn't require lenders to maintain escrow accounts on VA-guaranteed home mortgages. However, the VA does require that lenders ensure that the property is covered by sufficient hazard insurance at all times and that property taxes are paid.

So, most lenders use escrow accounts to comply with this requirement.

High-Cost Home Loans

Some lenders must collect monthly escrow payments from you for at least the first five years you have the mortgage if you have a "higher-priced" mortgage loan.

"Higher-priced" mortgage loans are loans with a rate based on interest, points, and other loan terms higher than levels established by the Consumer Financial Protection Bureau.

Conventional Loans

The lender decides whether to require an escrow account with conventional mortgage loans. Most conventional loan contracts, including the Fannie Mae and Freddie Mac uniform mortgage and deed of trust forms, contain an escrow clause. This clause requires an escrow account unless the lender waives this obligation in writing.

Generally, when you take out a conventional loan, your lender will require an escrow account if you borrow more than 80% of the property's value. So, if you make a down payment of 20% or more, your lender will likely waive the escrow requirement if you request it. However, the lender might require you to pay an escrow waiver fee.

Lenders also generally agree to delete an escrow account once you have sufficient equity in the house because it's in your self-interest to pay the taxes and insurance premiums. But the lender can revoke the waiver if you don't pay the taxes and insurance.

How to Remove an Existing Escrow Account

In some cases, you might be able to cancel an existing escrow account, though every lender has different terms for removing one.

Sometimes, the loan must be at least one year old with no late payments. Another requirement might be that no taxes or insurance payments are due within the next 30 days.

How to Ask Your Lender to Get Rid of Your Mortgage Escrow Account

If you want to get rid of your escrow account, call your loan servicer to find out if you qualify for a deletion of the account. You might have to fill out a form, such as an escrow waiver, cancellation, or removal request.

What Are the Benefits of Getting Rid of Your Mortgage Escrow Account?

One benefit to getting rid of your mortgage escrow account is that your monthly mortgage payment will be lower. But keep in mind you'll have to pay the property taxes and insurance premiums when they come due.

Also, some people prefer to have more control over their finances. By making payments into an escrow account, you're essentially making an interest-free loan to the servicer. Most escrow accounts don't pay interest on the money kept there. (However, some states require interest to be paid on escrow accounts.)

For this reason, some people prefer to hold on to their money and pay the tax and insurance bills themselves. You'll earn interest on the funds until you pay these bills. You could also use the money to pay your other expenses.

What Are the Drawbacks of Getting Rid of Your Mortgage Escrow Account?

Before waiving or canceling your escrow account, you should consider whether you really want to get rid of it. Some borrowers prefer to have a mortgage escrow account as a convenience. With an escrow account, the servicer assumes responsibility for paying property taxes and insurance. That's fewer bills you have to deal with.

Having an escrow account might also be a good idea if you're not good at saving money. You might inadvertently spend the money you need for the taxes and insurance before the payments are due. With an escrow account, it's easy to put aside money for bills due later because you contribute small amounts toward them with each mortgage payment.

Even if the lender waives or cancels the escrow requirement, it might require you to provide evidence that you've made the payments for taxes and insurance, which can be a hassle. And, if you don't keep up with the taxes and insurance premiums, you might be subject to late fees and penalties.

Also, if your mortgage servicer pays the taxes for you or buys insurance coverage on your behalf, you'll have to repay those amounts. Otherwise, the lender might foreclose.

Talk to a Lawyer

If you're facing a potential foreclosure, consider contacting an attorney to determine your options.

How to Get Rid of Your Mortgage Escrow Account (2024)

FAQs

How to Get Rid of Your Mortgage Escrow Account? ›

In some cases, you might be able to cancel an existing escrow account, though every lender has different terms for removing one. Sometimes, the loan must be at least one year old with no late payments. Another requirement might be that no taxes or insurance payments are due within the next 30 days.

How do I remove an escrow account from my mortgage? ›

To have your escrow account removed from your mortgage, you'll likely need:
  1. Less than 80% LTV on a conventional loan (no more than 90% LTV for a VA loan)
  2. No delinquencies within the last year and – depending on your investor – no 60-day delinquencies within the last 2 years.
  3. No loan modifications.

How do I write a letter to remove escrow from my mortgage? ›

How do I write a letter to remove escrow from my mortgage? I (We) hereby request PHH to remove the following Escrow items from the mortgage account. I (We) understand that once this change is made effective, it will be my (our) responsibility to ensure timely payment of property taxes and/or property insurance.

What happens if you cancel escrow? ›

If both parties mutually agree to cancel escrow and have completed Part 1 of the Cancellation of Contract - the Listing Agent may proceed to sell the property and open escrow with a new Buyer. The funds will be held pending the resolution and mutually-signed instructions as to what to do with the funds on deposit.

Is waiving escrow worth it? ›

Getting your escrow waived will lower your monthly mortgage payments, but it won't actually save you any money. Instead, you'll be responsible for saving money on your own so you aren't short on funds when your property taxes and home insurance are due.

Can I close my escrow account without refinancing? ›

You would have to refinance to a conventional loan if you wanted to remove the escrow requirement. Rules on canceling escrow accounts vary, so ask your loan servicer if you qualify. If so, you'll need to follow the rules set by the company.

Who owns the money in an escrow account? ›

Who owns the money in an escrow account? The buyer in a transaction owns the money held in escrow. This is because the escrow agent only has the money in trust. The ownership of the money is transferred to the seller once the transaction's obligations are met.

Can you write off escrow? ›

A escrow account is used in real estate to pay property taxes and insurance. Escrow accounts are set up by your mortgage lender. You can deduct your escrow account taxes but only the amount of taxes you in that given tax year. Was this topic helpful?

Can a buyer cancel escrow? ›

However, if there's still a contingency in the purchase and sale agreement that has not been met during escrow, it's easier for a buyer to walk away from the sale. Escrow can be canceled at any time during the transaction, up until all of the contingencies written into the offer have been met.

Why cancel escrow? ›

Having a lower monthly mortgage payment. (But you'll still have to pay property taxes and insurance premiums when they are due throughout the year.) Having a chance to hold onto money that would have gone into the escrow account longer. This may give you a chance to earn additional interest on the funds.

What are the disadvantages of an escrow account? ›

Cons of escrow

High upfront costs: Many escrow accounts require a minimum balance to cover unexpected expenses. You may have to keep an extra two or three months' worth of property taxes and insurance premiums as a cushion, or “escrow reserve.”

How do I reduce my escrow payment? ›

Refinance or modify your mortgage. If you can refinance your mortgage to a lower interest rate, then you can lower your overall mortgage payment — potentially offsetting a larger escrow account balance requirement. You can also use refinancing or modification as a means of extending your loan term.

Can a seller pull out of escrow? ›

Regardless of the reason, the seller must give some type of notice to the buyer, however (either a Notice to Perform or a Demand to Close Escrow) before the seller can cancel.

Why do I have to keep paying escrow? ›

While an escrow account is not required for every loan, it can be an important protection for you because it helps make sure you have the money you need to pay taxes and insurance when they are due. Failing to pay taxes and insurance can result in additional costs and fees and even lead to foreclosure.

Can you negotiate in escrow? ›

Entering escrow should be done in good faith. Your aim is to buy the property based on the information available. However, negotiation is an integral part of the real estate process.

Do FHA loans require escrow? ›

Federal Housing Administration (FHA) loans require all borrowers to have escrow accounts. The accounts are used to pay property taxes, homeowners insurance, and mortgage insurance premiums (MIPs).

Is there a fee to cancel escrow? ›

If the Closing does not occur because of the default of a Party, the defaulting Party shall bear all Escrow Cancellation Charges. If the Closing does not occur for any reason other than a default of a Party, then Buyer and Seller shall each pay one-half (1/2) of any Escrow Cancellation Charges.

Does paying extra escrow lower monthly payments? ›

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.

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