For a first‑lien higher‑priced mortgage loan (HPML) subject to federal TILA/Regulation Z rules, the escrow account generally must be maintained for a minimum of five years after consummation, with limited exceptions.
Core federal rule
Under Regulation Z’s HPML escrow provisions, a lender must establish and keep an escrow account for taxes and required insurance on a first‑lien HPML secured by the borrower’s principal dwelling. The rule extended the required maintenance period from at least one year to at least five years for these loans.
When escrow can be canceled
After the five‑year minimum, the escrow account may be canceled only if specific conditions are met, typically including:
- The borrower requests cancellation no earlier than five years after consummation.
- The unpaid principal balance is under 80% of the property’s original value and the borrower is not delinquent or in default.
Important caveats
- Certain small creditors and specific loan types (for example, some rural or underserved‑area creditors, certain construction or bridge loans) can be exempt from the HPML escrow requirement altogether.
- State law, investor guidelines (like Fannie Mae or Freddie Mac), or your loan contract may be stricter and require escrow to continue beyond the federal five‑year minimum, sometimes for the full loan term.
For advice on a specific loan, it is necessary to check the actual note, escrow agreement, and any state‑specific rules or consult a qualified mortgage or real‑estate attorney.