Are you wondering how to get rid of your mortgage escrow account to take control of your own property tax and insurance payments? You’re not alone! Many homeowners prefer to manage these payments independently for greater financial flexibility and awareness.
What Is a Mortgage Escrow Account?
A mortgage escrow account is a savings account set up by your lender to pay property taxes and homeowner’s insurance on your behalf. When you make monthly mortgage payments, a portion of the payment goes toward this escrow account. Then, when taxes or insurance premiums are due, your lender pays them from the account.
It’s a convenient option for many people, but it doesn’t work for everyone. Some prefer to manage their own payments without relying on the lender to handle them.
Benefits of a Mortgage Escrow Account:
- Easier Management: Your lender handles property tax and insurance deadlines for you.
- Built-in Savings: It ensures you set aside money each month for annual payments.
- Avoid Late Fees: Payments are made on time by your lender, eliminating the risk of forgetting.
Drawbacks of a Mortgage Escrow Account:
- Less Control: You don’t have direct control over your funds; the lender takes care of everything.
- Overpayments or Underpayments: Lenders sometimes overestimate or underestimate your taxes or insurance, leading to adjustments.
- No Interest Earned: The money in your escrow account doesn’t typically earn interest, unlike a savings account.
If the drawbacks outweigh the benefits for you, it may be time to consider canceling your escrow account.
Can You Get Rid of Your Escrow Account?
The ability to cancel your escrow account depends on the terms of your mortgage and state laws. While some lenders allow it, others may require you to maintain the escrow account as a condition of your loan.
Here’s what you’ll want to check for:
- Loan-to-Value Ratio (LTV): Many lenders require your LTV to be below 80% before they allow escrow removal.
- Account Status: Your mortgage account must be in good standing (no late payments!).
- Lender Policy: Each lender has specific rules, so check your loan agreement or contact them directly.
How to Get Rid of Your Mortgage Escrow Account
Follow these simple steps to take control of your property tax and insurance payments:
Step 1: Review Your Mortgage Agreement
Start by digging into your mortgage agreement or contacting your lender to check if you’re eligible to cancel your escrow account. Look for details like LTV requirements or restrictions specific to your loan type.
Step 2: Build a Track Record of Consistent Payments
Lenders may require you to have a strong history of on-time mortgage payments before they approve your request. If your payment record has a few missed or late payments, work on staying consistent for six months or more before applying.
Step 3: Check Your Loan-to-Value Ratio (LTV)
Most lenders want the LTV of your property to be 80% or lower before they’ll consider letting you cancel the escrow account. Essentially, this means you need at least 20% equity in your home. If your LTV is too high, focus on paying down your loan balance first.
Step 4: Request Removal in Writing
If you meet the eligibility criteria, submit a request to your lender in writing. Be sure to include:
- Your loan details (loan number, name, address)
- A formal request to cancel your escrow account
- Any documents required by the lender
Most lenders have specific forms for this process, so check with them before submitting your request.
Step 5: Wait for Approval
Once the request is submitted, your lender will review your application. If approved, they’ll notify you and provide instructions on how the transition will work.
Step 6: Start Managing Payments Independently
Congratulations! You’re now in charge of making your own property tax and insurance payments. Set up reminders or automatic payments to ensure you don’t miss deadlines.
Tips to Stay on Top of Your Payments
Managing your own property taxes and insurance might feel a little intimidating at first, but it’s all about staying organized. Here are some helpful tips to make it easier:
- Open a Dedicated Savings Account: Put money aside each month for property taxes and insurance in a high-yield savings account so you can earn interest.
- Set Reminders for Payment Due Dates: Add reminders to your calendar a few weeks before taxes or insurance premiums are due.
- Overestimate Costs: Save slightly more than your estimated taxes and insurance. If they increase unexpectedly, you’ll have funds to cover the difference.
- Use Payment Tools: Many tax collection offices and insurance companies offer online payment tools or automatic billing. Use these for convenience and to avoid late fees.
Is Canceling Your Escrow Account Right for You?
Canceling your escrow account can be freeing, but it also comes with added responsibility. If you feel confident in managing large payments and staying organized, taking charge of your property tax and insurance may be worth it. On the other hand, if you prefer the convenience of the lender’s handling, keeping the escrow account might be the better choice.
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