Even though you may be given the option to pay your taxes and insurance directly, the lender will continue to have the responsibility to monitor that insurance coverage remains in place and that you pay your taxes when they are due. If you fail to maintain insurance coverage and your home is damaged, the collateral for the mortgage could be affected. If you fail to pay your taxes when due, a lien could be placed on your property that is superior to the mortgage lien. When the lender collects those items as part of your monthly payment, the lender is assured that timely payment and coverage will be maintained. When you pay your taxes and insurance direct, the lender will require a fee to compensate for the monitoring required and the additional risk associated.
Contact a Loan Officer for further information.