How to Get Rid of Your Mortgage Escrow Account

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

By , Attorney ● University of Denver Sturm College of Law
Updated 10/04/2023

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.

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.

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.

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