Tutorial on Whether to Waive Escrows

18 April 2006, Revised November 15, 2008

Lenders generally require borrowers to include taxes and insurance premiums in their monthly mortgage payments, which are placed in escrow until the payment date when the amount due is paid by the lender. Mortgages are priced on that assumption.

When I had a mortgage I welcomed the escrow arrangement, because it simplified our budgeting and our life. It was a small price to pay, I felt, for the interest on the escrow account, earned by the lender rather than by me.

Other borrowers feel differently, however, and want to control the payment of taxes and insurance themselves. This avoids the risk that the lender will screw it up, which happens occasionally and which can be a nightmare for the borrower. See Advantages and Disadvantages of Mortgage Escrows.

If you feel this way, the lender may let you waive the escrow requirement if you are making a down payment of 20% or more, or if you make a modest payment, usually ¼ of a point – that’s $250 for each $100,000 of loan amount. Read How Can I Avoid Escrows?

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