When your mortgage payment includes an escrow account, you make a lump-sum payment to cover a combination of principal, interest, taxes and insurance, called PITI. On your mortgage statement, the taxes and homeowners insurance balances due may collectively be expressed as "T&I." Your lender collects taxes and insurance payments along with your principal and interest to ensure that these bills are paid on time. You may have to pay these costs with your mortgage until you have an acceptable amount of equity in your home.
The taxes part of T&I includes what you will owe to your city or town in property taxes. Your loan documents at closing estimated the annual cost of your taxes, and the mortgage company will divide that cost by 12 so you can pay a portion into your escrow account with every monthly mortgage payment. When your property taxes are due, your lender will pay them for you out of that escrow account.
Maintaining enough homeowners insurance on your property is essential; otherwise, your lender will purchase an expensive force-placed policy on your behalf. You will pay a monthly amount into your escrow account to cover homeowners insurance so that when your insurance bill is due, your lender can pay it. If your homeowners insurance premium increases or decreases, the lender will make the necessary adjustments to the T&I balance on your statement after an escrow analysis is completed.
Private Mortgage Insurance
Another component to the T&I balance you see on your mortgage statement is private mortgage insurance, commonly known as PMI. This insurance is usually required by your lender if your down payment is less than 20 percent of the home's purchase price. It protects the lender against the risk that you won't be able to pay your home loan. The cost of your PMI will depend upon your loan terms, and while you have the option to pay it upfront, most borrowers include it in their escrow payments.
Eliminating T&I Escrow
Canceling the escrow account that holds your taxes and insurance is possible with some loans and under certain conditions. Many loans backed by the federal government require an escrow account to be in place. For a conventional loan, you can ask your lender to waive the escrow requirement. Most mortgage companies are willing to do this once you have enough equity in the house. You'll need to have at least 20 percent of your mortgage paid off, and each lender has specific requirements. There may be an escrow waiver fee charged, and before you cancel your escrow account, you'll need to ensure that no property taxes or insurance payments are due in the next 30 or 60 days.
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