Escrow Cancellation Fee?

[dave2118]

Hello. We live in Indiana, and I refinanced our home in 2005. The mortgage was bought out by BigName Bank.

Recently, we decided that it would make more sense for us to pay our Homeowner's Insurance and Property Taxes ourselves so we called to cancel our Escrow Account. After a bunch of hoops and "meeting criteria", they agreed.

Right at the last minute, they tell us about an Escrow Cancellation Fee. This amount was almost the entire balance of what we had left in escrow.

When we've called on separate occasions, they've said one time it was for paperwork fees, another because they had to stop payment, and today the supervisor said because you're required to have homeowner's insurance paperwork.

I went through my 2005 mortgage papers and found no mention of this. After arguing for a while, they reduced the fee by about 25%.

That put me over the edge. I'm assuming since we never signed any paperwork with fees (they had me on hold for 20 minutes while they looked at it, then said, it was their fee), we are not responsible for this. We'll get a refund check of a small fraction of what's left in escrow.

I'm not the type to get all legal on them, but this really made me mad out of principal.

Am I correct?

[LindaP777]

Why would it "make more sense" for you to pay the taxes & insurance yourself? The bank does not make a profit on this service. The only thing you would be out is the interest on your money if you put it in a saving account ~ a few dollars at most.

[dave2118]

A few dollars is better than nothing.

[efflandt]

The time to get out of escrow would have been when you refi'd in 2005 (I refi'd to lower interest/shorter term, and got out of escrow then).

Actually my lender gave me an interest bearing checking account to auto pay my loan and to do my own escrow. But they have never required me to keep any particular balance (other than positive), so I deposit shortly before insurance or taxes are due and pay from that account so they can keep track of payments.

Many lenders charge slightly higher interest to refi without escrow (which can add up over time). So since your loan terms likely cannot change, charging you is the only way they would similarly benefit from no longer having the interest free use of your money.