What Happens to Your Escrow Account When You Pay Off Your Mortgage?

Paying off your mortgage is a remarkable feat, and it's important to know what happens to your escrow account when you do. Administrators must return the remaining balance in your escrow account within 20 days after the full cancellation of your mortgage. When refinancing, your new lender will most likely need their own escrow account. It's important to know that you can't transfer your current security deposit to a new account.

You'll need to deposit funds into the new escrow account when you close your pocket. Fortunately, you'll continue to get your refund once your old loan is canceled. If you have a negative escrow balance, this amount can be transferred to your new loan amount, provided you have sufficient equity and can financially qualify for the higher amount. Your settlement statement should also indicate if you need to make the final payment by bank transfer, bank check (cashier's check), or certified check, any of which will incur a small fee.

If you're not refinancing with your current lender, you'll need to deposit funds into the new escrow account at the time of settlement and then wait to receive a check from your current lender. However, if you're paying a large lump sum (maybe you got an inheritance or life insurance agreement), the effect on your credit may be more noticeable. The existing escrow account cannot be transferred unless your current lender is the same as your new lender, in which case your payment will be reduced by your current escrow balance.

Home equity accounts

are generally used to collect and pay property taxes and home insurance payments.

The securities company will indicate the excess escrow on the closing settlement statement and its current lender will apply the new funds when the settlement applies. If you have taken out a new loan, the new lender will reduce that refinance amount based on the excess of the escrow. If you decide to make additional payments on your mortgage, it's important to tell your lender to direct those funds to the principal balance of the loan. Since most mortgages include property taxes and home insurance premiums in the monthly payment, there will be an excess amount left over when the mortgage is paid.

The lender must perform an analysis of the escrow account once a year and notify you of any deficits or surpluses. While a mortgage holder (usually a bank) collects principal and interest payments each month, they can also collect homeowner's insurance payments and property taxes. Borrowers who have problems servicing their loan (including questions about the escrow account) should first contact the loan servicer in writing, describing the nature of their complaint.