Mortgage Escrow Accounts

Mortgage Loan - How your Mortgage Escrow works

Mortgage Escrow account is established to pay expenses while there is a loan on the house. These expenses include property taxes, homeowner's insurance, mortgage insurance and other escrow items. Usually, the custodian of the account is funded in part to the closing of the house and the buyer made contributions going through their monthly mortgage payment. 

This is an amount of money maintained at a lending institution in order to pay the annual taxes and insurance on mortgaged property. Approximately one-twelfth of the estimated annual cost of taxes and insurance is paid into the account each month from the borrower’s monthly mortgage payment. Then the lending institution pays the taxes and insurance from this account when they are due.

An escrow account is required by many lending institutions in order to insure that the taxes and insurance premiums are paid on time. It is, in a sense, a budgeting device which requires borrowers to set aside enough money to pay their taxes when due. If there is not enough money in the customer’s escrow account at the time of tax payment, sometimes lenders will advance the funds at no charge, and allow the customer to pay back the advance through higher escrow payments.