Do I Need an Escrow Account?
/Norah Tanner, part of the Houzd Mortgage Team, is back to explain escrow accounts and whether you need one on your mortgage.
When you take out a mortgage, your lender typically requires you to set up an escrow account (also called an impound account). This is a separate account that the lender manages to collect and pay your property taxes and homeowner’s insurance on your behalf.
Each month, part of your mortgage payment goes toward principal and interest, and part goes into the escrow account. When taxes or insurance come due, your lender uses the funds in escrow to pay them directly.
Waiving escrows means you choose not to have this account. Instead, you take responsibility for paying property taxes and insurance premiums yourself, directly to the taxing authority and insurance company.
How It Works When You Waive Escrows
If you waive escrows, your monthly mortgage payment will only include principal and interest. You’ll receive separate bills for your property taxes and insurance, and you’ll need to budget and pay them by the due dates.
For example:
With escrows: Your $2,000 mortgage payment might include $1,500 for principal/interest and $500 for taxes/insurance.
Without escrows: You’d pay the $1,500 mortgage each month, but you’d separately pay the $6,000/year taxes and $1,000/year insurance in lump sums (or on whatever schedule those bills are due).
When Can You Waive Escrows?
Not everyone qualifies. Many lenders require:
A loan-to-value ratio (LTV) of 80% or less (meaning at least 20% equity/down payment)
A strong credit profile
A history of on-time payments
Some loan types, like FHA loans, always require escrows, while conventional loans may allow waivers if you meet the criteria.
Pros of Waiving Escrows
Lower monthly payment since you’re not pre-paying taxes and insurance each month
More control over your money — you can hold funds in your own account until they’re due
Potential to earn interest on your money if kept in a savings or investment account until payment time
Cons of Waiving Escrows
Risk of missed payments — if you forget or don’t budget correctly, you could face tax penalties or insurance lapses
Large lump-sum bills — you’ll need to set aside thousands of dollars to pay taxes and insurance all at once
Some lenders charge a small fee or rate increase for escrow waivers, especially on riskier profiles
Bottom Line
Waiving escrows can give you more flexibility and control over your funds, but it also puts the responsibility squarely on your shoulders. It’s a good fit for disciplined borrowers who can reliably budget and pay large bills on time.
Before deciding, weigh the convenience and peace of mind of an escrow account against the freedom and potential interest earnings of managing taxes and insurance yourself.