Reasons to Remove an Escrow Account

An escrow account is attached to most mortgages as a set-aside account to pay property taxes and insurance. A portion of your monthly mortgage payment is directed into the escrow account. When insurance and property taxes need to be paid, the bank handles the details. If your escrow account does not pay interest, however, you might prefer to put the money in an interest-bearing account and keep up with insurance and tax payments yourself.

Step 1

Contact your mortgage lender to find out if your loan is eligible for escrow removal. Federal law requires that FHA loans maintain an escrow account for the life of the loan. VA loan escrow accounts are not federally mandated, but most lenders will not remove escrow from a VA loan.

Step 2

Check to see that the balance of your escrow account is not negative. Many lenders will not consider a removal request while the account balance is in the red.

Step 3

Get your bank's rules about how to remove escrow. Some lenders, such as Bank of America, require no more than a telephone request for removal. Others insist that you put your request in writing.

Step 4

Make your property tax and insurance payments current. Contact the local taxing authorities and your homeowner's insurance provider to get the appropriate amounts. Whether you pay electronically or by check, get documentation that the payment was received.

Step 5

Write a letter asking your mortgage lender to close the account. The letter should include your mortgage loan number, the property address, your identifying information, your signature and the date. The letter should state that your taxes and insurance are current. Include your payment confirmation as an enclosure or attachment to the letter.

Step 6

Pay the mortgage escrow closing fee, if any. Because banks make money on the money that sits in your escrow account until taxes and insurance are paid, many set up roadblocks to closing them. An escrow account closing fee is one such roadblock.

Step 7

Look for confirmation that the escrow account has been closed. A letter or notice from the bank is to be expected. If your escrow account had a positive balance, you should receive a check in that amount with the mailed confirmation.

Tip

  • Some lenders have a loan-to-value maximum ratio requirement for escrow removal. Many banks will not allow you to remove the escrow account if your loan-to-value ratio exceeds 80 percent. This means your balance can be no more than 80 percent of your home's appraised value.
  • Banks might also require that your mortgage be a certain age, at least six months old, for example. The lender might require that you have had no late payments and that the property be a primary residence and not an investment property.
  • If your lender does not have any balance requirement for closure and the escrow account was at a negative balance when it was removed, you will receive a bill for the shortfall. Pay the bill timely, within 60 days at most.
  • Your lender may have a pre-printed escrow account change request form that can be used in place of a letter.
  • Some banks, such as ING Direct, do not attach escrow accounts to mortgages at all, leaving the tax and insurance payments up to you from the get-go.

Warning

  • If the fee to close your escrow account is greater than the interest you might earn on keeping the money in a separate account, you might choose to leave mortgage escrow in place.

About the Author

D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.

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