ADVERTISEMENT
a small play house sitting on a table along with a calculator, a clear jar full of coins, and a piece of paper with a few colored graphs printed on it.

Disadvantages of Mortgage Escrow Accounts

Mortgage escrow accounts help mitigate the amount of risk and difficulty of paying off your mortgage, but they aren’t all good. There are some significant disadvantages to mortgage escrow accounts that you should be aware of before you hire an escrow agent. 

Fixed Monthly Payment

Mortgage escrow accounts require you to make equal payments every month, regardless of your income. For someone who experiences a hardship, it can be difficult to manage the account and make a regular payment. Paying your bills yourself allows you to call an insurance company to make arrangements. Additionally, people who have a low yearly income, but receive a high quarterly or annual bonus may find that paying expenses themselves much easier than a mortgage escrow account.

Lack of Control

A mortgage escrow account takes control of your money out of your hands. The money you put into the account is held by the escrow agent or officer until bills are due. These funds don’t accrue interest like they would in a high-interest savings account. Borrowers who don’t have an escrow account can invest their money as they see fit and earn a higher return by putting into stocks, a savings account, or other fruitful accounts that earn interest.

Not Enough Withheld

A common problem with escrows is that you may not have enough money in the account at the end of the year. This is usually due to an oversight by the escrow company or the escrow agent. You are still responsible for the difference, and you must pay the amount to avoid late fees or delinquencies. People who have a mortgage escrow account should keep track of their own finances and make sure that they are paying enough money to cover all escrow items incase the shortage isn’t their fault.

Lender Error

While rare, the escrow officer or lender could make an error that affects you significantly. For example, the escrow company could hold many mortgage escrow accounts and your money could be sent to the wrong insurance company or pay the wrong property tax. The bills may not be paid on time, and this can directly result in a statement sent directly to you stating that you’re responsible for paying. The escrow company should fix the issue, but you may not know when a payment is missed until you receive a late notice and penalties are added to your bill.

Funds Inaccessible

Funds in an escrow account aren’t accessible by anyone other than the escrow officer and your mortgage company. If there is an emergency, you won’t be able to access any funds stored within the account. You may want to get rid of your account so you have access, but this is a complicated process because your mortgage company holds the mortgage escrow account. You may be required to obtain certain requirements or get a new mortgage to cover your home. Some companies require that you pay all property taxes and insurance before you cancel your mortgage escrow account.

Last Updated: December 13, 2018