When Can You Cancel an Impound Account? Equity & Requirements Explained

For many homeowners, an impound account (also known as an escrow account) feels like both a safeguard and a restriction. On one hand, it ensures your property taxes and homeowners’ insurance are paid on time. On the other, it locks you into making extra monthly payments that some borrowers would prefer to handle themselves.

In 2025, more homeowners are asking: “When can I cancel my impound account?” The answer depends on your loan type, equity position, and lender requirements—but with the right strategy, you may gain the flexibility to manage your own expenses.

What Is an Impound Account?

An impound account is a savings account managed by your lender. Each month, a portion of your mortgage payment is set aside to cover property taxes, homeowners’ insurance, and sometimes mortgage insurance.

Instead of paying those bills separately, the lender makes the payments on your behalf.

Why lenders require them:

• Risk management: Ensures taxes and insurance don’t lapse.
  
  
• Loan security: Protects the lender’s collateral (your home).
  
  
• Borrower convenience: Simplifies budgeting by spreading costs monthly.

Can You Cancel an Impound Account?

Yes—but not everyone qualifies. Whether you can cancel depends on loan type and equity percentage.

1. Conventional Loans – Many lenders allow removal once you have 20% equity or more in your home.
   
   
2. FHA Loans – Escrow accounts are generally mandatory for the life of the loan.
   
   
3. VA Loans – Some lenders may waive escrow with sufficient equity, but it’s less common.
   
   
4. Jumbo Loans – High-value mortgages may have stricter requirements, often needing even more equity before escrow can be waived.

Typical Requirements to Cancel an Impound Account

While requirements vary by lender, the following conditions are common:

• Equity Threshold: At least 20% equity, proven through appraisal or amortization.
  
  
• On-Time Payments: A clean 12-month payment history with no late payments.
  
  
• Loan Type: Conventional loans are the most flexible. FHA borrowers usually cannot cancel.
  
  
• Credit Score: Some lenders require a minimum score of 680–700.
  
  
• Property Type: Single-family residences are usually eligible; multi-unit or investment properties may face restrictions.

Why Homeowners Want to Cancel

Homeowners in Los Angeles, where property taxes are high, often want the flexibility of managing payments directly. Common reasons include:

• Cash Flow Control: Instead of monthly contributions, you manage lump-sum tax and insurance payments.
  
  
• Interest Opportunity: Keeping money in your own account may allow short-term interest or investment benefits.
  
  
• Lower Monthly Payment: Without escrow, your monthly obligation decreases (though you still owe taxes and insurance separately).
  
  
• Flexibility: You choose when and how to pay—particularly useful for entrepreneurs or those with irregular income.

Risks of Canceling an Impound Account

Canceling isn’t always the smarter move. Potential downsides include:

• Budgeting Discipline Required: You must set aside large sums for property taxes (often 1–1.25% of home value annually in Los Angeles).
  
  
• No Cushion for Increases: Insurance or tax hikes may catch borrowers off guard.
  
  
• Possible Lender Resistance: Some lenders may decline requests even if equity requirements are met.

Example: Canceling Escrow in Los Angeles

Let’s say you bought a $800,000 home in Los Angeles with 10% down. Your lender required an impound account. After 5 years, you’ve built equity through payments and appreciation, reaching 22% equity.

• With strong credit and on-time mortgage payments, you can now request cancellation.
  
  
• If approved, your monthly mortgage bill could drop by $600–$900, depending on property tax and insurance costs.
  
  
• But you’ll need to plan ahead for bi-annual tax bills, which could be $5,000+ in one lump sum.

Steps to Cancel an Impound Account

1. Check Equity – Order a mortgage statement or appraisal to confirm you have 20%+ equity.
   
   
2. Review Loan Type – FHA loans usually don’t qualify. Conventional loans are best.
   
   
3. Contact Your Lender – Ask about their specific requirements.
   
   
4. Submit a Written Request – Lenders often require a formal application.
   
   
5. Maintain Payment History – Continue making on-time payments during review.
   
   
6. Plan for Bills – If approved, budget for future tax and insurance obligations.

Market Insight: Why More Borrowers Are Asking in 2025

With Los Angeles homeowners facing average property taxes of $8,500 annually and rising insurance premiums due to wildfire risks, many prefer managing funds themselves. At the same time, mortgage balances are shrinking as equity rises nationwide—giving more borrowers the leverage to cancel escrow accounts.

Final Thoughts

Canceling an impound account gives borrowers more control but also more responsibility. It works best for disciplined homeowners with strong equity positions and reliable cash flow. For Los Angeles residents, where property tax bills are significant, it’s a decision that requires careful budgeting and foresight.

If you’re weighing whether to keep or cancel your impound account, consult with a trusted lender. Equity Capital Home Loans can guide Los Angeles homeowners through the requirements, helping you decide if cancellation makes financial sense for your situation.

FAQs

1. What’s the minimum equity required to cancel an impound account?

Most lenders require 20% equity, but some may ask for more depending on loan type or risk profile.

2. Can FHA borrowers cancel their escrow account?

Generally, no. FHA loans require escrow for the life of the loan, regardless of equity.

3. How do I prove I have enough equity?

Lenders may accept an appraisal or use your current amortization schedule to confirm your equity position.

4. What happens if I cancel and miss a property tax payment?

You’ll face penalties from the county tax assessor, and your lender may force reinstatement of escrow.

5. Is canceling an impound account common in Los Angeles?

Yes. With higher-than-average property tax bills, many Los Angeles homeowners seek cancellation once they reach 20% equity for greater cash-flow flexibility.

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