What Happens to My Escrow Account If I Refinance My Mortgage?

Refinancing can feel like hitting the financial reset button — saving thousands of dollars a year. You get a better rate, possibly skip a payment, and start fresh with a new loan. But one part of your old mortgage doesn’t transfer over — your escrow account.

And for homeowners who’ve been faithfully paying property taxes and homeowners insurance every month, that can create some confusion — and an unexpected cash crunch.

Don’t let escrow accounts get in the way of your savings. This article will show you how to keep more money in your pocket, maximize the benefit of your refinance, and avoid giving up thousands unnecessarily because of how escrows are structured.

When you refinance, your escrow balance doesn’t move to the new loan. It stays with your old servicer, gets refunded a few weeks later, and you start a brand-new escrow account with your new lender. It sounds simple enough — until you realize it can mean fronting thousands of dollars for taxes and insurance all over again.

That’s where timing and lender flexibility make all the difference.

Why Escrow Accounts Exist (and Why They Matter in a Refinance)

To understand your options with escrow accounts during a refinance, it helps to first understand why escrow accounts exist and why they matter. These accounts play a crucial role in protecting both the homeowner and the lender by ensuring that property taxes and insurance are always paid on time.

Your escrow account is basically a built-in savings account for property taxes and homeowners insurance. Each month, part of your mortgage payment goes into that account, and when your taxes or renewal premium come due, your lender pays them on your behalf.

It’s a system that prevents missed payments or coverage lapses — and most lenders require escrow if your loan-to-value (LTV) exceeds 80%. Even at higher equity levels, many borrowers keep it for convenience. Some lenders will allow you to waive escrows, but there may or may not be a small hit to your rate since it’s considered slightly riskier for the lender when taxes and insurance aren’t managed through escrow.

But during a refinance, the slate is wiped clean. Your old loan — and its escrow account — are closed. The balance can’t transfer to the new loan, even if you refinance with the same company, because every mortgage is a separate legal agreement. Federal servicing laws require each escrow account to be tied to a specific loan.

Once your old loan is paid off, your previous servicer will close that account and issue a refund (usually within 15 business days). Meanwhile, your new lender opens a fresh escrow account — and asks you to fund it upfront.

Why Your Escrow Costs Spike During a Refinance at the End of the Year

Let’s say you close your refinance in October. Your first new payment is due in December because mortgages are paid in arrears — you pay October’s interest in November, and your December payment covers November’s interest.

Here’s the issue: your new lender needs enough in escrow to pay taxes and insurance as soon as they’re due. That means they’ll collect any remaining months for the year plus a two- to three-month cushion as required by federal law.

If your annual property taxes are $12,000, your lender might need around $11,000 for the remainder of the year, plus $3,000 as a cushion — a $14,000 deposit.

Even though you’ll eventually get your old escrow refunded, that check doesn’t come immediately. For a few weeks, you’re floating both accounts — a serious cash flow hit if your refinance also involves closing costs. This timing mismatch is so discouraging that many homeowners skip refinancing altogether, even when lower rates could save them thousands in interest each year. Most walk away not because refinancing doesn’t make sense — but because they don’t know their options to reduce that upfront burden, like working with a lender that can waive escrow or time the refinance around property tax cycles.

What is Escrow Netting?

Escrow netting is where your existing escrow balance is applied toward your new loan payoff instead of being refunded later. It can be convenient, but it’s rarely available, and it’s not something we recommend relying on - especially since the ones who offer it, often don't offer you the best rate for your refinance because they're relying on the convenience of escrow netting being your most important factor. Most refinances move to a new lender or servicer, which means netting isn’t even an option.

When escrow netting isn't availble, you’ll need to fully fund a new escrow account from scratch. For many homeowners, that means an outlay of $10,000 or more — money that doesn’t technically go toward lender fees but still comes directly out of pocket.

It’s a timing mismatch: you have to pay upfront for taxes and insurance on your new loan before receiving your refund from the old one. That gap can make or break a refinance. Not everyone has $10,000 in liquid cash just to cover overlapping escrow accounts.

Take a real-world example: a client in Austin wanted to refinance from 6.75% to 5.75%. But because he was refinancing in October, his new escrow account would have required about $15,000 for property taxes and insurance — making the deal financially impossible. Luckily, he worked with LendFriend, and we waived the escrow requirement entirely. There was no rate increase, and the refinance closed smoothly with minimal cash to close.

That’s the power of working with a lender who knows how to structure a refinance to fit your financial picture — not the other way around.

Two Ways to Reduce the Out-of-Pocket Hit

If you’re planning to refinance and want to avoid tying up thousands in duplicate escrow funds, here are two proven strategies:

1. Work With a Lender That Can Waive Escrow (Even on High-LTV Loans)

Many large banks require escrow accounts for borrowers with less than 20% equity. At LendFriend, we can often waive escrow even when your loan-to-value ratio exceeds 80%. That means you pay property taxes and insurance directly, skipping the upfront deposit entirely.

It’s ideal for borrowers who manage cash flow responsibly and want to stay in control of their funds. You’ll still need to show you’re on top of payments, but waiving escrow can dramatically reduce how much you bring to closing.

Example: If your taxes are $12,000 per year and insurance is $2,400, waiving escrow can save you $3,600–$4,000+ upfront — the typical two- to three-month cushion.

Some lenders charge a small escrow-waiver fee — often around 0.25% of the loan amount — but it’s still far less than what you’d otherwise need to deposit.

This is the same strategy that helped our Austin client refinance from 6.75% to 5.75% without having to front the $15,000 that would have been required for taxes and insurance. By waiving escrow, he avoided the cash crunch entirely and closed quickly — proving how the right lender can make refinancing accessible even when timing isn’t ideal.

2. Time Your Refinance Around Your County’s Tax Schedule

The best time to refinance is whenever you can save 1% or more on your mortgage rate, but the optimal time is right after your property taxes have been paid (learn more here).

The fewer unpaid months left in the tax cycle, the less your new lender needs to collect upfront. For most homeowners, that means January is the best month to refinance.

Example: In Texas, property taxes are typically due by January 31st. Refinance in February, and your new escrow account starts fresh — with nearly 11 months before the next bill is due. That can reduce your required deposit by thousands. Refinance in October, though, and your lender will need nearly a full year of taxes upfront.

Pro Tip: Always ask your lender to provide a prepaid escrow estimate before locking your loan. The timing difference alone can swing thousands of dollars in or out of your pocket.

When You’ll Get Your Escrow Refund From Your Old Lender

Most servicers issue escrow refunds within 15 to 30 days after your old loan is paid off. The check will be mailed automatically, usually to the address on file. If your taxes were just paid, your refund may be smaller; if not, it’ll be larger. Either way, your new lender will use your new deposit to cover upcoming payments.

Bottom line: you’re not losing the money — but the delay between funding and refund can create short-term cash pressure.

Key Takeaways of Refinancing and Escrow Accounts

• Your old escrow account closes when you refinance — it doesn’t transfer. You’ll need to establish a new one tied to the new loan.

• Refunds usually arrive within 15–30 days, but timing depends on payment cycles and servicer processing.

• If escrow netting isn’t available (and it often isn’t), you’ll need to fund a new account, sometimes over $10,000.

• To minimize out-of-pocket costs, refinance right after property taxes are paid or work with a lender who can waive escrow.

• Escrow refunds aren’t lost money — they just take time. Planning ahead helps you bridge the gap smoothly.

• Request a prepaid escrow estimate before locking your rate to understand cash-to-close requirements.

• Smart escrow planning ensures you capture refinance savings without being blindsided by timing or liquidity issues.

Thinking About Refinancing?

Before you move forward, talk with a broker who maps out the true cost and cash flow impact — not just the rate. At LendFriend Mortgage, we guide you through every step, from escrow funding to refund timing, so there are no surprises after closing.

Give us a call at 512.881.5099 or reach out to us here. We’d love to be your partner in the process.