How to Remove an Escrow Account From Your Mortgage

A mortgage escrow account serves as a dedicated fund managed by your lender to cover property taxes and homeowner’s insurance premiums. This arrangement ensures these bills are paid on time, protecting your investment and the lender’s interest. Funds for the escrow account are collected as part of your regular monthly mortgage payment.

Many homeowners consider removing their escrow account, seeking more direct control over their finances. Opting out allows individuals to manage tax and insurance payments independently, potentially earning interest on funds that would otherwise reside in escrow.

Meeting Lender Eligibility Requirements

Removing an escrow account depends on meeting specific criteria set by your lender. A primary factor is your Loan-to-Value (LTV) ratio, which compares your loan balance to your home’s current market value. Lenders typically require an LTV of 80% or less, meaning you have at least 20% equity in your home, to consider an escrow waiver.

Your payment history is another significant eligibility requirement. Lenders generally require a consistent record of on-time mortgage payments, often looking for no late payments within the past 12 to 24 months. Some policies also check for no payments 60 or more days past due in the preceding 24 months.

The type of loan you have can also determine eligibility. Government-backed loans, such as those from the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or U.S. Department of Agriculture (USDA), often have stricter requirements or may not permit escrow removal for the life of the loan. Conventional loans offer more flexibility for waiver requests.

Lenders may also have a loan seasoning requirement, which dictates a minimum period since the loan’s origination before an escrow waiver can be requested. This period commonly ranges from 12 to 24 months, ensuring a track record of responsible loan management. Your escrow account must have a positive balance, as a negative balance would disqualify you from removal.

Lender policies vary, so consult your loan documents or contact your loan servicer directly to understand their precise requirements. Some lenders may also mandate escrow for certain payments like Private Mortgage Insurance (PMI) or flood insurance, even if other escrowed items are waived.

Gathering Necessary Information and Documentation

Before formally requesting escrow removal, homeowners should collect specific information and documentation. Begin by locating your mortgage loan number, found on your monthly mortgage statements.

You will need proof of your homeowner’s insurance policy, including policy number, coverage dates, and premium amounts. Some lenders may also request proof of recent premium payments or upcoming renewal dates to confirm continuous coverage.

Gather your recent property tax bills. These documents contain details like the property’s parcel number, assessed value, and the annual tax amount. Understanding the payment schedule and exact amounts is necessary for the request and future direct payments.

Review your latest mortgage statements to understand your current escrow balance and any recent disbursements. This review confirms the account holds a positive balance, a common prerequisite for escrow removal.

An initial call to your lender’s customer service or loan servicing department allows you to confirm their specific documentation requirements and any forms needed for the escrow waiver process.

Initiating the Removal Request

Once eligibility criteria are met and information gathered, formally initiate the escrow removal request with your lender. Contact your lender through a dedicated customer service line for escrow services, a written request, or an online portal if available.

When submitting your request, clearly state your intention to remove the escrow account. Include your loan number and all gathered documentation, such as proof of homeowner’s insurance and property tax details. Providing complete and accurate information helps prevent delays.

Some lenders may impose a one-time fee for processing an escrow removal request. This fee can vary, ranging from a flat amount, such as $50, to a percentage of the outstanding loan balance, sometimes around 0.25%. Inquire about any associated fees when you contact your lender.

The timeline for lenders to review and respond typically ranges from 7 to 15 business days, though some processes may extend to one to three mortgage payment cycles. After approval, ensure you receive written confirmation that the escrow account has been officially closed and your monthly mortgage payment adjusted.

Managing Direct Payments After Removal

Upon successful removal of your escrow account, new financial responsibilities fall directly to you. You will now be solely responsible for paying your property taxes directly to your local tax authority. Understand the specific due dates in your jurisdiction, as these can vary, often requiring payments semi-annually or annually.

Similarly, you will be responsible for directly paying your homeowner’s insurance premiums to your insurance provider. Insurance companies typically offer various payment options, including monthly, quarterly, or annual plans. Ensuring continuous coverage and avoiding lapses protects your property and complies with loan terms.

A disciplined approach to budgeting and saving helps manage these significant, infrequent payments. Consider establishing a separate savings account for accumulating funds for property taxes and insurance premiums throughout the year. This strategy helps avoid financial strain when large bills become due.

Monitoring tax and insurance statements and their respective deadlines is necessary. Missing payments can result in penalties, interest charges, or even the risk of your lender reinstating an escrow account. Lenders retain the right to reinstate an escrow account if payments are missed or if your loan-to-value ratio changes significantly due to factors like a second mortgage or declining property value.