## Understanding Mortgage Escrow Accounts
A mortgage escrow account is a special account held by your mortgage lender. It is used to collect funds for property taxes, homeowners insurance, and other expenses related to your homeownership. These funds are held in trust until they are due to be paid.
### Benefits of an Escrow Account
There are several benefits to having an escrow account:
* **Convenience:** You don’t have to worry about budgeting for or remembering to pay your property taxes and homeowners insurance.
* **Protection:** If you fall behind on your mortgage payments, your lender can use the funds in your escrow account to pay your property taxes and homeowners insurance, which can prevent your home from going into foreclosure.
* **Lower interest rates:** Some lenders offer lower interest rates to borrowers who have escrow accounts.
### Drawbacks of an Escrow Account
There are also some drawbacks to having an escrow account:
* **Fees:** Your lender may charge a monthly fee to administer your escrow account.
* **Overage or shortage:** If your lender collects more money for property taxes or homeowners insurance than is actually due, you will be reimbursed the overage. However, if your lender collects less than is due, you will be responsible for paying the shortage.
* **Delayed payments:** If your lender makes a mistake in calculating your escrow payments, it could delay the payment of your property taxes or homeowners insurance.
## Can I Cancel My Mortgage Escrow Account?
In most cases, you can cancel your mortgage escrow account. However, there are some exceptions. For example, if you have a government-backed loan, such as an FHA loan or a VA loan, your lender may require you to have an escrow account.
If you are not required to have an escrow account, you can cancel it by contacting your lender and requesting that they close the account. Your lender will send you a refund for any unused funds in the account.
### Pros of Cancelling Your Escrow Account
There are several pros to cancelling your escrow account:
* **Save money:** You will no longer have to pay the monthly escrow account fee.
* **Control over your finances:** You will have more control over your finances and how you budget for property taxes and homeowners insurance.
* **Avoid late payments:** You will not have to worry about your lender making a mistake in calculating your escrow payments and delaying the payment of your property taxes or homeowners insurance.
### Cons of Cancelling Your Escrow Account
There are also some cons to cancelling your escrow account:
* **Responsibility for payments:** You will be responsible for paying your property taxes and homeowners insurance on time. If you forget to make a payment, you could face penalties and late fees.
* **Budgeting:** You will need to budget carefully to ensure that you have enough money to pay your property taxes and homeowners insurance when they are due.
* **Foreclosure risk:** If you fall behind on your mortgage payments, your lender will not be able to use the funds in your escrow account to pay your property taxes and homeowners insurance, which could increase your risk of foreclosure.
## Should I Cancel My Escrow Account?
The decision of whether or not to cancel your mortgage escrow account is a personal one. There are both pros and cons to consider. If you are considering cancelling your escrow account, it is important to weigh the pros and cons carefully and to make sure that you are prepared to assume the responsibility for paying your property taxes and homeowners insurance on time.
Here are some factors to consider when making your decision:
* **Your financial situation:** Do you have a stable income and are you able to budget effectively? If not, you may want to keep your escrow account to avoid the risk of falling behind on your property taxes or homeowners insurance payments.
* **Your comfort level with managing your finances:** Are you comfortable with the idea of managing your own property tax and homeowners insurance payments? If not, you may want to keep your escrow account for the convenience and peace of mind it provides.
* **Your lender’s requirements:** Some lenders require borrowers to have escrow accounts. If your lender requires an escrow account, you will not be able to cancel it.
If you decide to cancel your escrow account, be sure to contact your lender in writing and request that they close the account. Your lender will send you a refund for any unused funds in the account.