I’m considering canceling escrow and managing property taxes and insurance payments on my own for my investment property. Are there any significant risks I should be aware of with this approach? Do most investors prefer handling these expenses themselves, or is it better to keep them in escrow? I’d love to hear about your experiences and recommendations. Thanks in advance!
Whether or not escrow is “required” is up to the lender. I’ve done it both ways & prefer the escrow so I don’t have to budget & plan for the 2 expenses.
Why not hold onto the money and collect interest on it for yourself instead of letting the bank hold it. Also, I don’t like the bank adjusting the payment all around every year.
I am not an investor but have recently removed escrow. I just have to remember to pay taxes and insurance
If you have less than 20% equity in the property then you must escrow. If you have over 20% equity you can likely cancel escrow account by signing some paperwork with your lender. Contact them for details. As others point out, letting the servicer handle these costs is less work for you, though occasionally they make errors so you should still monitor. If doing it on your own, just make sure you pay the bills.
@Zeph
Actually, I put down 10 percent and I don’t have anything in escrow, just PMI
Pace said:
@Zeph
Actually, I put down 10 percent and I don’t have anything in escrow, just PMI
Are you in California? 49 states require a 20% equity position to waive escrows. California is the exception and allows 10%.
@Briar
No, I was in Pittsburgh, PA
@Briar
I also don’t escrow and didn’t put 20% down, in Maine. I dropped the escrow when we refinanced (at that point we still didn’t have 20% equity).
Most lenders don’t just let you cancel escrow because if you miss tax or insurance payments that’s a liability to them.
Zen said:
Most lenders don’t just let you cancel escrow because if you miss tax or insurance payments that’s a liability to them.
Weird because my lender didn’t include insurance, only taxes for my escrow
@True
None of my mortgages ever included property insurance in the escrow.
I was able to de-escrow about half of my properties. It really depends on how your loans are packaged. Many of our loans are placed into a ‘pool’ of similar loans. Once they go into the pool they inherit the risk of that pool. One of those risk factors is whether or not escrow is required. I wish I could de-escrow all of my properties but it is up to the lender and the risk factor. I keep physical escrow for all of these properties, putting the escrow payment into a ‘bucket’ until I need to pay Property Taxes, Insurance, or HOA Fees. I adjust the escrow amount once a year to account for changes in property taxes and insurance. All of that is held in an HYSA until I need it. It does give me a false sense of a strong cash position though. I get a lot of unsolicited calls from my bank begging me to utilize their investment services. At the end of the day just remember that it’s not your money, you are just holding it until taxes, insurance, and HOA’s are due.
I have removed escrow from all my properties and set aside the monthly amount in a high-yield savings account. Last year the interest was actually decent and made the time and effort worthwhile. I also pay my insurance with a credit card and typically get 2 signup bonuses just for paying my insurance.
You would need to check if you even have the right to end escrow. Many don’t because failure to pay taxes puts the lien ahead of the loan, and lack of insurance means their collateral isn’t protected.
Our only requirement was loan to value, then we turned monitoring on. 70% or less, we let you pay!
I had escrow and they weren’t paying my property taxes and only half the insurance policies. It was a total mess. Called them and asked them to cancel and cash me out. I pay everything myself now.
Uma said:
I had escrow and they weren’t paying my property taxes and only half the insurance policies. It was a total mess. Called them and asked them to cancel and cash me out. I pay everything myself now.
Is it really just the property taxes and insurance you have to pay every year? There aren’t any other hidden little fees they don’t tell you about when cancelling escrow?
@Zen
Nope no other fees unless they gave you a discount for setting one up. Has to do with how much risk the lender thinks you are. How big of a down payment you put in, credit score, etc. Lender may or may not let you cancel an escrow account at their discretion.
Uma said:
I had escrow and they weren’t paying my property taxes and only half the insurance policies. It was a total mess. Called them and asked them to cancel and cash me out. I pay everything myself now.
This happened with me too. Had them take care of insurance through escrow, come to find out one lender assigned the loan to another, new lender did not pay insurance on time, my policy lapsed 
. So now no more escrow payment, will save the $ in a separate account and pay myself - yes it’s a hassle but oh well!