Should I Stop My Mortgage Escrow? By: Curtis Ophoven 6/4/2009 - 8 Comments Last month I got a letter from the bank holding my mortgage saying that I can discontinue my mortgage escrow account. Your Ad Here Apparently there is a law in MN that says that after paying five years of a mortgage, the bank no longer has to manage an escrow account with a mortgage.  An escrow account is a pool of money collected with a monthly mortgage payment that is used by the bank holding the mortgage to pay the property taxes and homeowners’ insurance premium. An escrow account reduces the risk of a homeowner not paying their property taxes or homeowners insurance.  Most banks will give a lower interest rate to borrowers if they agree to an escrow account because it lowers their risk of foreclosure.  So, the question is should I cancel my escrow account or not?  Here are some of the advantages and disadvantage that I can think of. Advantages of Escrow The obvious advantage is that I only have to pay one bill each month and the bank takes care of saving some of the money each month in an escrow account and making sure my property taxes and homeowners insurance is paid.   Without an escrow, I will have to manage my cash flow so that I will have enough money to make my property tax and homeowners’ insurance payments twice a year when they are due - another bill to remember.  Disadvantages of Escrow An escrow account increases my monthly mortgage payments by $200-$300. The escrow money is put in an account with the bank and therefore I lose the opportunity to invest this money and earn any income with it.  This could also help pay off my mortgage sooner. An escrow account causes my monthly mortgage payment to change with my property taxes.  My mortgage payment is automatically withdrawn from by checking account, but I don’t like when it changes because I have to adjust by checkbook balancing with the new account.   Today, whenever my escrow account is underfunded or overfunded because of a change in property tax, the bank changes my monthly mortgage payment to increase or decrease the amount of money that is collected for my escrow account.  This is annoying to say the least.  If I were to pay my property taxes separate from the mortgage payment by cancelling my escrow, then my mortgage payments would no longer fluctuate.  What would you do? I am strongly considering cancelling my mortgage escrow primarily for the opportunity to invest this money and make an income before the money is needed.   Subscribe via RSS Copyright © 2010 PennyJobs.com. All rights reserved. Related Articles How to Save Money by Cleaning Your House 7 Reasons to Grow Your Savings Account While You Are Still Employed 10 Reasons Why You Should Pay Off Your Mortgage Real Estate is No Longer An Investment, Get It Through Your Head Why Do We Need Savings? << FREE >> Weekly Newsletter... Signup today and start receiving our free weekly newsletter! Reader Comments Comment 1 j Says: on Thursday, June 04, 2009 10:12:20 PM don't do it. the best investment right now is farmland and that is not liquid enough to sell off when you will need to pay your property taxes in six months... if you buy other commodities, you will have to pay buy/sell brokerage fees which will cost you more than what you will make in six months as well... Comment 2 bob Says: on Tuesday, June 09, 2009 12:52:47 PM Can you quantify the lose of money you could be earning with your escrow account? If your property taxes are $2,400 / year, and the average balance in escrow half of that ($1,200), then you are losing the interest you could make on that. If you put it into a savings account at the current market rate of 1%, you would save $12 / year. If you used it to pay extra principle toward your mortgage (assuming it is 5%), you would save (invest) $60 / year. Comment 3 Ana Says: on Wednesday, July 08, 2009 10:19:40 PM I would do it, when I bought my house a few years ago the realtor asked if I wanted to escrow, and after a long consideration a few good hours the night before I decided not too. You will have more interest to pay and like you are already going thru the flex of the payments,one or two bills more vs. saving some money, I think I would opt to save the extra money especially in these tough times. Comment 4 Paul Says: on Monday, August 17, 2009 10:36:36 AM Hi, I was actually thinking of paying my taxes as opposed to the escrow account so I can pay online with a credit card and gain the points for the rewards part. That is allowed in my town's tax office from what I saw on their website. Comment 5 boutonniere Says: on Friday, September 25, 2009 5:04:19 AM I thin paul is right, You should go with it. Comment 7 a.b.amir@hum.leidenuniv.nl Says: on Friday, December 04, 2009 7:49:58 AM a.b.amir@hum.leidenuniv.nl Comment 8 Cliff Says: on Thursday, January 21, 2010 11:12:30 PM you need to cancel that escrow. We recently received a notice from our mortgage company "projecting" our new taxes. They think our taxes will increase by 100% for some reason and are going to charge us near double what we are paying to the escrow in anticipation of that. It is rediculous! I am looking at options for cancelling the account as I type this... Write a Comment Please keep comments civil and on-topic. 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