What is an escrow account and how does it work?
Learn how mortgage escrow collects money for certain property expenses.
A mortgage escrow account is an account a lender or servicer uses to collect and pay certain property-related expenses, commonly property taxes and homeowners insurance.
A portion of the monthly mortgage payment goes into the account, and the servicer pays covered bills when they come due.
Escrow requirements and the expenses included can vary by loan and circumstances.
Why lenders use escrow
Escrow spreads large periodic bills across monthly payments and helps keep important taxes and insurance current. The money is for designated property expenses, not extra principal on the loan.
Why the escrow payment can change
Taxes and insurance premiums can rise or fall. The servicer periodically compares what was collected with expected bills and may adjust the escrow amount.
Mortgage escrow is not earnest-money escrow
The same word is also used for transaction arrangements that hold earnest money or closing funds. Those arrangements are different from the mortgage account used for ongoing taxes and insurance.
Questions to ask
- Which bills will be escrowed?
- How much is collected at closing?
- How often is the account analyzed?
- Which property costs must I pay separately?
Know what is included in your payment
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