How To Remove an Escrow Account From Your Mortgage: Pros & Cons

Estimated reading time: 6 minutes

Can escrow be removed from a mortgage? For many homeowners, the answer is “yes,” depending on their eligibility and their loan’s requirements. Some borrowers take advantage of this option to lower their monthly payments or keep extra money on hand but it comes with pros and cons. If you’re a Mr. Cooper customer, here are a few things to consider and information on how to remove an escrow account from a mortgage.

What is escrow?

First, let’s review what an escrow account is and why it can be helpful. In this context, an escrow account is an account that mortgage lenders and servicers (the company you send your payment to) create to hold money that will pay a borrower’s property taxes and insurance premium(s). Each month, a portion of a borrower’s mortgage payment goes into the account for these costs. This makes budgeting for these big expenses easier. Consider that:

• U.S. property taxes on single-family homes in 2022 ranged from an average yearly high of $9,527 in New Jersey to an average low of $928 in West Virginia, according to the real estate data firm ATTOM.
• Homeowners insurance premiums are expected to cost an average of $3,379/year in 2023 in high-risk areas, and an average of $1,387 in lower risk areas, according to data in an April 2023 Money article. Annual premiums in Florida were projected to settle higher—an average of $8,000.
• Flood insurance typically adds hundreds of dollars more in costs if a home has it. Some mortgages require it, especially for homes in designated flood zones.

Note that mortgage insurance—PMI (private mortgage insurance) or MIP (mortgage insurance premium)—is not subject to the same escrow removal requirements. For more information, see our Mortgage Insurance (also PMI or MIP) article for more details.

What are the advantages of removing escrow from a mortgage?

Possible benefits include:

• Having a lower monthly mortgage payment. (But you’ll still have to pay property taxes and insurance premiums when they are due throughout the year.)
• Having a chance to hold onto money that would have gone into the escrow account longer. This may give you a chance to earn additional interest on the funds. You could also use the money to pay other expenses in the short term.
• Being in control of when you pay your property taxes and insurance premiums.
• Having more flexibility if you want to change insurance carriers. (They must still meet our insurance carrier requirements, including an A rating from A.M. Best.)

What are the disadvantages of removing an escrow account from a mortgage?

As you look into how to remove an escrow from a mortgage, also consider that:

• It may be hard to budget for large, lump-sum property tax and insurance bills.
• You may spend the money you need for the taxes and insurance before the payments are due.
• If payments are late or missed, you’ll be responsible for any penalties or fees in addition to the original costs.

What happens if I don’t pay my property taxes and insurance on time?

Missed payments should be taken very seriously—they can lead to significantly higher mortgage payments. This is because mortgage servicers will typically pay the late property taxes and insurance. This is to protect the property from liens or tax sales, but the homeowner will be responsible for repaying the costs, plus any fees and penalties. The added costs will be added to the borrower’s monthly mortgage payment in—you guessed it—an escrow account.

For example, if a homeowner’s insurance lapses, mortgages servicers will typically put “force-placed insurance” on the account. This type of insurance protects the investor’s interest in the property in case of a natural disaster. As Investopedia explains, “the policy will cover only the amount due to the lender [or servicer], which may not adequately protect the home in the case of a full or partial loss.” The policy’s cost will be charged back to the homeowner, and it is usually more expensive than what a homeowner would pay for the same coverage on their own.

Who is eligible for escrow removal?

That depends on a few factors. These can include what state your property is in and who owns your loan or guarantees it. These entities can include Fannie Mae or Freddie Mac, the VA, Federal Housing Administration (FHA), etc. To determine your eligibility, it’s best to contact us (see how below), but generally speaking, Mr. Cooper customers need:

• A loan-to-value (LTV) ratio of 80% or less.
• An escrow account with a positive balance. (This means Mr. Cooper has not paid escrow funds on your behalf because your account had insufficient funds.)
• To not have had escrow force placed in the past.
• A loan that is current and has not had a payment that was 30 days or more late in the last 6 or 12 months. (If this rule applies, the number of months will depend on your loan’s eligibility requirements.)
• Proof of a current homeowners insurance policy in our system. (Hazard insurance is another name for this.)

When is escrow required?

In some cases, it may not be possible to remove an escrow account. For example:

• All Federal Housing Administration (FHA) loans require an escrow account.
• Loans that have been modified through a modification where escrow is a requirement must keep an escrow account.
• Loans that require flood insurance may also require an escrow account to pay the premium.
• Loans that have had escrow “force-placed” previously are not eligible for escrow removal.

What if I don’t meet the LTV ratio my loan needs to be eligible? Can you remove escrow without refinancing?

You may need to consider refinancing if you need to meet a specific loan-to-value ratio. For example, if your current LTV ratio is 85% but to be eligible you need to reach 80%, you may want to refinance. On the other hand, refinancing will involve added costs and fees. This may erase any benefit of removing an escrow account from your mortgage. Talk to one of our mortgage experts to explore this option more.

How can I find out if I’m eligible to remove escrow from my mortgage?

To see if your loan is eligible for removing escrow, contact us via:

• Message Center: Select the envelope icon in the upper-left corner, once you are signed in.
• Email: ResearchIncoming@mrcooper.com
• Mail:

Mr. Cooper
PO Box 612488
Dallas, TX 75261

• Fax: 972-459-1611

Note: This process can take up to 15 business days.

What if I change my mind?

If you remove the escrow account from your mortgage and decide to add it back, you’ll want to plan ahead. The entire process can take over a month. With that in mind, you should pay anything due within 60 days of your request. This will be key if any insurance or tax bills come due before the process completes. You will be responsible for paying those costs to avoid any additional fees and penalties. To request the addition of an escrow account, use the same steps that are listed above. To learn more, read our article on adding an escrow account in the Help Center.

For more information on how to remove escrow from your mortgage, visit our Help Center.

Tradenames and trademarks used in this blog post are the property of their respective owners. Nationstar Mortgage LLC d/b/a Mr. Cooper is not affiliated, associated, or sponsored by any of these owners. Use of these names and trademarks is not intended to and does not imply endorsement but is for identification purposes only. Information provided does not necessarily represent the views of Mr. Cooper. Information is subject to change without notice.