Closing an Escrow Agreement

Paying your mortgage lender extra money with each mortgage payment is a good way to make sure that you pay your property taxes and homeowners insurance bill on time. But maybe you no longer want to maintain such an escrow agreement with your mortgage lender. You might want more control over the money, and would rather invest these dollars. Depending on the escrow agreement that you signed when closing your mortgage loan, you might be able to close your escrow account and pay your homeowners insurance and property taxes on your own.

If you have an escrow account with your mortgage lender, you send extra money with each mortgage payment. Your lender deposits this money into an escrow account, using it to pay your property taxes and homeowners-insurance bills when they come due. The upside of such an arrangement is that you don't have to worry about saving for these bills on your own. You also don't have to worry about forgetting to pay these hefty bills. On the downside, lenders are not required to pay you interest on your escrow account.

If you cancel your escrow agreement, you can deposit the extra money that you would have sent to your lender in an interest-bearing account. This way, these dollars will earn you money throughout the year, something that won't happen if you simply give them to your lender with each monthly mortgage bill. You do have to be careful, though; property taxes and homeowners insurance can be expensive. You need the discipline to actually save the money you need for these bills during the year. Otherwise, you might be unable to come up with enough money to pay them when they come due.

Before canceling your escrow account, you'll need to study the escrow agreement you signed when taking out your mortgage loan. Call your lender to request a copy if you can't find yours. This agreement will state whether you can cancel your agreement; some lenders won't allow it. In such cases, you'll need to refinance to a new loan to avoid escrow. Other lenders will permit you to close your escrow agreement, but only after you've reached a certain level of equity in your home. Some lenders might let you cancel escrow at any point, but will require that you pay a fee for the privilege.

Your lender might require that you sign an escrow-cancellation form to officially end your escrow agreement. Once you officially close your account, your lender will send you any remaining money in it. Be sure to contact your county and homeowners insurance provider to tell them that your mortgage lender will no longer be paying these bills on your behalf. They will now have to bill you directly.

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