Skip to main content

Useful Tips

What is an escrow account?

A mortgage escrow account, also known as an escrow impound account, is a financial arrangement established by a lender to hold funds on behalf of a borrower to pay certain expenses related to the mortgage loan. It is a separate account that is typically managed by the mortgage servicer or a third-party escrow company.

When you have a mortgage escrow account, a portion of your monthly mortgage payment is allocated to cover certain expenses, such as property taxes, homeowners insurance, and sometimes other costs like private mortgage insurance (PMI) or homeowners association (HOA) fees. Instead of you having to pay these expenses separately, the lender collects the necessary funds as part of your regular mortgage payment and holds them in the escrow account until the payments are due.

When the property taxes or insurance premiums are due, the lender uses the funds in the escrow account to make the payments on your behalf. This ensures that these essential expenses are paid on time, protecting both you as the borrower and the lender's interest in the property. By spreading out these expenses over the year and including them in your monthly mortgage payment, it can also make budgeting for these costs more manageable.

The specific expenses included in an escrow account can vary depending on the lender, loan program, and local regulations. Additionally, some lenders may require an initial deposit to establish the escrow account, which is often included in your closing costs when you first obtain the mortgage.

It's important to note that escrow accounts are not required for all mortgage loans. In some cases, borrowers may choose to handle these expenses themselves, which is known as "paying outside of escrow" or "waiving escrow." However, many lenders may require escrow accounts, especially for borrowers with a small down payment or certain types of loans.

If you have questions about whether your mortgage loan includes an escrow account or how it is being managed, it's best to contact your mortgage servicer or lender for specific information related to your situation.