What is an Escrow Account?

In real estate, an escrow account is set up by your mortgage lender to pay certain property-related expenses on your behalf. Most lenders require you to pay a portion of your property taxes and homeowners insurance each month along with your mortgage payment.

How Does It Work?

When you make your monthly mortgage payment, part of it goes toward your loan principal and interest, and the other part goes into your escrow account. When your tax bills and insurance premiums are due, the lender pays them from the escrow account.

• Convenience: You don't have to worry about saving for large annual tax or insurance bills.
• Protection: It ensures that your property taxes are paid on time (preventing tax liens) and that your home remains insured (protecting the lender's investment).
• Adjustments: Because tax and insurance rates change, your lender will perform an annual escrow analysis. If there's a shortage, your monthly payment may increase. If there's an overage, you may receive an escrow refund.