How to Get Rid of Escrow on Your Mortgage

A mortgage escrow account, managed by your loan servicer, holds funds for annual property taxes and homeowner’s insurance premiums. It integrates these costs into your regular mortgage payment, simplifying financial management. While commonly required by lenders, it is sometimes possible to remove this account from your mortgage arrangement.

Understanding Escrow Account Components

An escrow account holds funds for property taxes and homeowner’s insurance premiums. Each month, a portion of your mortgage payment is allocated to this account, accumulating funds until bills become due. Your loan servicer then uses these funds to pay these expenses on your behalf.

Lenders require escrow accounts to safeguard their investment. Unpaid property taxes can lead to tax liens or foreclosure, impacting the lender’s collateral. Homeowner’s insurance protects against property damage, ensuring the collateral retains its value. The escrow system assures lenders these payments are made promptly, mitigating risks. This arrangement ensures the property remains adequately protected.

Eligibility Criteria for Removal

Removing an escrow account requires meeting specific criteria, which vary by lender and loan type. A primary factor is your loan-to-value (LTV) ratio. Many lenders require an LTV of 80% or less, meaning you have at least 20% equity. While some conventional loans allow a higher LTV, the 80% threshold is more common for established loans.

Your payment history is another significant consideration. Lenders typically demand a consistent record of on-time payments, often requiring no payments that were 30 or more days late for 12 to 24 months preceding the request. A strong payment history demonstrates your financial responsibility and ability to manage large, periodic expenses independently. Lenders assess this history to ensure you are a reliable candidate for handling tax and insurance payments directly.

Your loan type also influences eligibility. Federal Housing Administration (FHA) loans generally mandate an escrow account for the life of the loan and typically do not permit removal unless you refinance. While the Department of Veterans Affairs (VA) does not strictly require escrow accounts, most VA lenders still implement them. VA loan removal criteria often align with conventional loans, though having sufficient equity is still important. Conventional loans offer the most flexibility for escrow removal, provided other criteria are met.

Lender-specific policies play a substantial role in the approval process. Each mortgage servicer establishes its own guidelines, which may include additional requirements such as a positive escrow account balance or the absence of prior “force-placed” insurance. Some lenders may also consider if the loan has undergone a modification. It is essential to consult directly with your loan servicer to understand their precise requirements.

Steps to Request Escrow Removal

Once you meet eligibility criteria, formally initiate the request with your mortgage servicer. Contact your servicer via phone, their secure online message portal, or by submitting a written request. Reviewing your original mortgage agreement for specific clauses regarding escrow removal can be helpful.

Your servicer will provide an official form, such as an “Escrow Waiver Request,” to complete and submit. You may need to provide supporting documentation, including proof of your current homeowner’s insurance policy and property tax payment history. An updated property appraisal might also be requested to verify your current loan-to-value ratio.

After submitting your request and documentation, the lender will begin their review process. This involves verifying your eligibility against their specific criteria, including your payment history and LTV. Some lenders may charge a one-time escrow removal fee, which can range from a flat administrative charge to a percentage of your original loan amount. This fee covers administrative costs.

The timeline for processing an escrow removal request varies by servicer. You can expect a decision within 7 to 15 business days, though some processes might take up to 30 days. Upon approval, your servicer will notify you of the change and your new mortgage payment amount. You will then be responsible for managing your property tax and insurance payments independently.

Responsibilities After Escrow Removal

After removing your escrow account, the responsibility for managing property tax and homeowner’s insurance payments shifts to you. You will no longer pay these amounts as part of your monthly mortgage bill. Instead, obtain your property tax bills directly from the local taxing authority and ensure they are paid by their due dates. Property tax due dates vary by jurisdiction, often annually or semi-annually.

You become solely responsible for managing your homeowner’s insurance policy. This includes ensuring continuous coverage, understanding renewal terms, and paying premiums directly. Confirm your policy meets your lender’s minimum coverage requirements. Failure to maintain adequate insurance can lead to your lender purchasing “force-placed insurance,” which is often more expensive.

Effective budgeting is crucial for these direct payment responsibilities. Property taxes and insurance premiums are substantial, infrequent expenses. Set aside a portion of these anticipated costs each month into a separate savings account. This helps avoid financial strain and prevents large lump-sum payments.

Consistently monitoring your tax assessments and insurance renewals is paramount. Property tax values can change annually, leading to fluctuations in your tax bill. Insurance premiums can also increase at renewal. Staying informed allows you to adjust your savings. Neglecting these payments can result in late fees, penalties, or even foreclosure.