Escrow

Escrow is an account your mortgage servicer uses to collect and hold money for property taxes and homeowners insurance, paying those bills on your behalf when they come due.

Each month a portion of your payment goes into the escrow account on top of principal and interest. For example, if your yearly taxes and insurance total about $3,600, roughly $300 is added to each monthly payment and set aside. When the tax or insurance bill arrives, the servicer pays it from the account so you avoid a large lump sum.

Lenders review the account once a year and adjust your payment if costs rise or fall. The word escrow also describes funds held by a neutral third party during a home purchase before closing.

Related terms: Closing Costs, Principal

 
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