Get rid of escrow

Question: My husband and I refinanced last year and since then our mortgage has been sold twice. We have always paid in a timely manner and we have never missed a payment. The previous banks collected escrow for the exact annual amount of our taxes and insurance. This new bank just sent me notification that they have the legal right to collect more so that the escrow balance doesn't go below zero immediately after they pay the taxes. The amount that the account went below was by $3000 but it was all recovered by the end of the year. The bank wants a cushion of $4500 which is even more than the negative balance. I asked to pay eliminate the escrow so that my husband and I can pay the taxes ourselves and not give them all that extra money and we were told that we could make this request but that they were not required to allow us to do so. Is this true? If so, why do the responsible people always get slammed? Any thoughts? Rachel, Cumberland, RI

Answer: Many people don't like escrow accounts. But it's really hard to get a bank to drop an escrow account once it's in place. It's to their benefit and lenders have little incentive to waive it. You should make the request anyway. Sometimes the lender will agree to drop escrow in return for a fee, especially if a good chunk of the mortgage has been paid off. The bank is right: They can require a savings buffer in the account. However, a partial mitigation is that Rhode Island is at least one of only 14 states that insist the lender to pay interest on the escrow funds.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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