How to Remove Escrow From Your Mortgage

A mortgage escrow account is a dedicated fund managed by your mortgage lender or servicer. Its primary purpose is to collect and disburse payments for your property taxes and homeowners insurance premiums. This helps ensure these significant, recurring homeownership expenses are paid on time, protecting both your investment and the lender’s interest in the property. Many homeowners find the convenience of having these costs bundled into their monthly mortgage payment beneficial. However, some homeowners prefer to manage these payments directly, seeking to remove the escrow account from their mortgage.

Eligibility for Escrow Removal

Homeowners must understand the eligibility criteria set by mortgage servicers. These requirements vary among lenders, but common conditions exist. Confirming these details directly with your mortgage servicer is the most accurate approach.

A primary factor for escrow removal is your Loan-to-Value (LTV) ratio. This ratio compares your current mortgage balance to the appraised value of your home. To calculate your LTV, divide your current loan balance by your home’s current appraised value and multiply by 100 to get a percentage. Most lenders typically require an LTV of 80% or lower for escrow removal, meaning you have at least 20% equity in your home. Some lenders may require an even lower LTV.

Your payment history plays a significant role in eligibility. Lenders generally require a strong record of consistent, on-time payments. This often means no payments 30 days or more past due within the last 12 to 24 months. A clean payment history demonstrates your reliability in managing financial obligations, which is a key consideration for lenders when transferring the responsibility of tax and insurance payments to you.

Loan seasoning refers to the length of time your mortgage loan has been active. Many lenders require the loan to have been in place for one to two years, before escrow removal is considered. This timeframe allows lenders to assess a borrower’s payment behavior and financial stability over a sustained period. Additionally, the escrow account itself must typically have a positive balance, indicating no prior shortfalls that the lender had to cover.

The type of loan you have also impacts eligibility. Federal Housing Administration (FHA) loans, for instance, generally mandate an escrow account for the entire life of the loan. To remove escrow from an FHA loan, you typically need to refinance into a conventional loan. While the Department of Veterans Affairs (VA) does not strictly require escrow for VA-guaranteed mortgages, many lenders offering VA loans still include an escrow requirement. Conventional loans, which are not government-backed, often have more flexibility regarding escrow waivers if the LTV criteria are met.

Private Mortgage Insurance (PMI) is another consideration. If PMI is active, escrow removal is usually not possible. PMI protects the lender if you default and is typically required when you have less than 20% equity. Once you reach the 20% equity threshold, you can often request PMI cancellation, which may allow for escrow removal. Some lenders may also impose a minimum remaining loan balance.

Steps to Remove Escrow

Once you have assessed eligibility, formally request escrow removal from your mortgage servicer. This process requires direct communication with your lender. Specific steps and required documentation may vary slightly by servicer.

Contact your mortgage servicer’s loan servicing department. Many lenders have a dedicated process for “escrow waiver” or “escrow removal” requests, found on their website or by calling their customer service. You will likely need to submit a formal written request or complete an application form. This request typically includes your loan details and an affirmation of your responsibility for direct payment of taxes and insurance.

While you have already determined your eligibility, the lender may still require certain documentation to accompany your formal request. This could include a recent appraisal to verify your home’s current value and confirm your LTV ratio. Proof of a current homeowners insurance policy is also typically required to ensure continuous coverage. The review period can take anywhere from a few days to several weeks, commonly 7 to 15 business days.

After review, the lender will communicate their decision, usually in writing. If approved, the escrow account will close, and your monthly mortgage payment will be recalculated. Any surplus funds will typically be refunded. Some lenders may charge a one-time fee for processing the waiver, which could be a small percentage of the unpaid principal balance or a flat fee.

Handling Payments After Escrow Removal

Upon successful escrow removal, responsibility for paying property taxes and homeowners insurance shifts entirely to you. This requires careful financial management and proactive planning to avoid penalties and ensure continuous coverage. These expenses will no longer be bundled into your monthly mortgage payment.

You must identify due dates for property tax payments, which often occur once or twice a year, and obtain tax bills directly from the local tax authority. Many jurisdictions offer online payment portals, mail-in options, or in-person facilities. Be aware of potential property reassessments that could change your tax liability.

Similarly, managing homeowners insurance premiums involves understanding your policy’s renewal cycle and due dates. You will receive billing statements directly from your insurance provider and must ensure timely payments to maintain continuous coverage. Be mindful of policy renewals and any premium adjustments.

Proactive budgeting and saving are essential to cover these large, infrequent payments. Setting aside funds each month into a separate savings account can help you accumulate the necessary amounts by the due dates, preventing financial strain. This approach provides direct control over these funds and the potential to earn interest until they are due.

Failing to pay property taxes can lead to serious consequences, including tax liens, accumulating interest and penalties, and potential foreclosure. If homeowners insurance premiums are missed, your policy could be canceled, leaving your home unprotected. Your mortgage lender may then purchase “force-placed” or “lender-placed” insurance, which is typically more expensive and offers less comprehensive coverage, adding the cost to your loan. Lenders also retain the right to reinstate an escrow account if property taxes or insurance payments are not handled properly, to protect their financial interest.