There's a good chance your monthly mortgage payment is doing more than paying down your home. Part of it sits in an escrow account, waiting for your property tax bill or insurance premium to come due. A new federal rule could change what happens to the interest that money earns while it waits.
In May, the OCC - the federal regulator that oversees national banks - issued two rules. One lets federally chartered banks set the terms of escrow accounts, including interest and fees. The other says federal law overrides state laws on those terms. The rules took effect June 18.
The attorneys general argue the OCC overstepped its authority, and they point to past court rulings that sided with state consumer-protection laws.
"The rules basically allow OCC-regulated banks not to pay interest on mortgage escrow accounts," said Solomon Maman, a Chicago attorney who focuses on financial services law.
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Mortgage escrow accounts hold monthly payments that go toward property taxes, homeowners insurance, and mortgage insurance when required. About 80% of mortgage borrowers have one, according to Lereta. The money adds up, because tax and insurance bills usually come due only once or twice a year.
Those balances are substantial. The average yearly property tax bill on the nation's 87 million owner-occupied homes was $4,271 in 2024, per the National Association of Homebuilders. Insurify.com projects the average yearly homeowners insurance premium will reach $3,057 by late 2026.
Fourteen states and territories require escrow accounts to pay interest. Rhode Island ties the rate to a regular savings account, while Maryland uses one-year Treasury yields. Bankrate puts the average traditional savings account rate at 0.63%.
A one-year Treasury yields just under 4%. On a $5,000 balance, that's the difference between earning $31.50 a year and $200.
State-chartered banks are not directly covered by the OCC rules, but Maman says it gets complicated. Some states have wild-card statutes that let state banks match the powers of national banks. "If a national bank is allowed to do something that state-chartered banks aren't allowed to do, they get parity," he said.
Whether anyone actually loses escrow interest right away is unclear. Federal courts have issued conflicting rulings on similar fights. "There are some conflicting court decisions," Maman said. "Does that mean a national bank that has been doing it would immediately change it? They may or may not."
If the rules stand, borrowers could see less interest on their escrow balances, or none at all. Any interest they do earn is still taxable, and lenders may send a 1099-INT for it. For now, the lawsuit moves forward, and anyone with a mortgage will be watching closely. How much your escrow earns, if anything, may soon depend on which judge gets the case.
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