That depends on the type of loan you have for the most part. Typically you have the right to request that the servicer waive the escrow process and pay your taxes and insurance yourself. (Both, or one or the other). However, they don’t necessarily have to agree to waive escrow depending on the terms of the loan you signed and your payment history, etc.

However, new rules have been proposed that would require the bank to have an escrow account established on your behalf. It helps ensure that the entire payment amount is taken into account at the start of the loan and helps insure that the taxes and insurance are being properly paid in a timely manner.

There is only one real financial advantage to not having an escrow account and paying your taxes and insurance yourself. That’s called float, which is the interest you might earn by having that money in a interest bearing bank account instead of a non-interest bearing escrow account. Right now the float is pretty minimal considering what kind of interest you might be able to get.

On a normal loan, I’ve seen escrow waiver fees typically cost 0.25 points. On a $200,000 loan that’s a $500 fee.

There’s two different ways to explain why they would charge a fee. Both are equally valid explanations.

1, it’s more work for the bank to verify your taxes and insurance are being paid if you don’t have an escrow account. Whereas if you do have an escrow account, they know they are being paid and there are automated systems in place to manage that.

2, the bank loses float on their end when they don’t have that escrow money in their account. The float reduces their servicing costs which increases their net servicing income.