Why Do I Pay Escrow On My Mortgage?

Why Do I Pay Escrow On My Mortgage?

If you have recently bought or own a house, then you have probably heard of escrow. When you use escrow in the process of buying a home, you are essentially using a third party during the purchase of your home.

This third party controls the money and assets that will be needed for the purchase of the home until both parties are ready to proceed.

When it comes to buying a home, escrow can make it a lot easier, and a lot less stressful. But, escrow is also something that can extend past the initial purchase of your home. 

Why do I pay escrow on my Mortgage?

If you have bought a house recently, then there is a good chance that you will be paying escrow on your mortgage. Some people enter into this agreement without even knowing why they pay escrow on their mortgage, or what it is for.

In this guide, we’ll be taking a look at what escrow on a mortgage is, and what it is used for. So, to find out more, keep on reading.

What Is Escrow On A Mortgage?

First things first, let’s take a look at what escrow on a mortgage is. If you have used escrow during the purchase of your home, then it is likely that you also have a mortgage escrow account.

Mortgage escrow accounts have become very common in recent years, and they are something that a lot of people have.

As you probably expect, mortgage escrow accounts operate similarly to the process of using escrow to purchase your home. So, let’s take a look at these two things.

As we have said, escrow upon purchasing a house involves using a third party to handle the finances for the purchase until both parties are ready to proceed.

Escrow on a mortgage also involves a third party, and this is why mortgage escrow accounts exist. Mortgage escrow accounts are essentially special holding accounts where you can add funds for things such as homeowner’s premiums and property taxes.

You do not handle this mortgage escrow account, instead it is handled by your mortgage provider. When you pay a mortgage payment, your mortgage provider will take a small amount of this money and deposit it into your escrow account.

This escrow account then acts as a savings account to pay the taxes and premiums on your house, without you being out of pocket.

While it seems complex at first, as you can see, mortgage escrow accounts are actually very simple. So, let’s take a look at why you pay escrow on your mortgage.

Why Do I Pay Escrow On My Mortgage?

We have established what ‘escrow on a mortgage’ is, but you might still be confused as to why you are paying it.

As we have said, mortgage escrow accounts are something that are now very common, and this is partly why so many people have them.

But, this alone isn’t the main reason why people pay escrow on their mortgage.

In most cases, people are paying escrow on their mortgage because it is required by the lender. In particular, lenders tend to insist on a mortgage escrow account if the down payment for the property is less than 20% of the value of the home.

A mortgage escrow account gives the mortgage lender more security because they know that your home premiums and taxes will be paid, because they are arranging the money for payment.

So, essentially lenders add a requirement of a mortgage escrow account when they are offering higher risk mortgages.

Depending on the type of mortgage that you have, and the lender that is offering you the mortgage. Just as some lenders add a mortgage escrow account to higher risk mortgages, other lenders require a mortgage escrow account on all of their mortgages.

So, this could be another reason why you are paying escrow on your mortgage.

Do I Need To Pay Escrow On My Mortgage?

Paying escrow on your mortgage can seem fine at first, but after a while, it really can begin to grate that you have to pay this additional fee on top of the cost of your mortgage.

If this is beginning to bother you, then you might have found yourself wondering ‘do I need to pay escrow on my mortgage?’.

Generally speaking, yes, you do need to pay escrow on your mortgage. If you have accepted a mortgage offer from a lender that requires a mortgage escrow account, then you have signed an agreement to pay this fee, so you must pay it.

If you do not pay your escrow fee, then this could call the safety of your whole mortgage into question, and your mortgage provider might withdraw their services.

However, it might be possible to stop paying escrow on your mortgage if you follow the correct steps. Let’s take a look at how.

Can I Get Rid Of The Escrow On My Mortgage?

In some cases, you will be able to get rid of the escrow payment on your mortgage. You should not do this by simply not sending the payment, instead you should go through the proper channels.

These proper channels begin by you making a written request to your mortgage provider for them to withdraw the requirement for escrow. At the same time, you should request to close the escrow account.

Upon this request, you might be sent a letter or form to fill out in order to achieve this. But, you will only be given this option if your mortgage lender offers mortgages without escrow accounts attached to them.

The form that you receive will either be known as a ‘escrow waiver’, ‘removal request’, or ‘cancellation request’. Typically, you will have to pay a fee, or put your mortgage payments on ‘auto-pay’ once your mortgage escrow fee account has been waived.


In short, you pay escrow on your mortgage so that your mortgage lender can set aside the money to pay your property taxes and home-owner premiums.

Most mortgage lenders require escrow on your mortgage if the down payment for your home is less than 20% of the home’s value. It is possible to waiver your escrow payments, but you will need to do this by contacting your lender directly.

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