Escrow
What Is an Escrow Account?
An escrow account is a separate account managed by your mortgage loan servicer to pay property-related expenses on your behalf.
Instead of paying property taxes and homeowners insurance directly, you contribute a portion of those costs monthly as part of your mortgage payment. The servicer then pays those bills when due.
Escrow accounts are common for conventional and government-backed loans.
Why It Matters in a Mortgage
Escrow protects both borrower and lender by ensuring:
- Property taxes are paid on time
- Insurance coverage remains active
- Large annual bills are spread into manageable monthly amounts
Entities such as Fannie Mae often require escrow accounts for loans with lower down payments.
Without escrow, homeowners must budget for large lump-sum tax and insurance payments.
How It Works
Your monthly payment includes:
- Principal
- Interest
- Taxes
- Insurance
The servicer holds tax and insurance funds until payment deadlines.
An annual escrow analysis adjusts your payment if costs increase or decrease.
FAQs About Escrow Accounts
Can I remove escrow?
Sometimes, after reaching sufficient equity.
Can escrow payments increase?
Yes, if taxes or insurance rise.
Do all mortgages require escrow?
Not always.
Related Terms
