Escrow Account
A lender-managed account that holds funds for property taxes and homeowner's insurance, paid in monthly with your mortgage.
When you have an escrow account, your monthly mortgage payment includes 1/12 of your annual property taxes and 1/12 of your annual homeowner's insurance premium. The lender holds the money and pays the bills when they come due.
Escrow protects the lender's collateral position, unpaid taxes can become a senior lien ahead of the mortgage, and an uninsured loss could wipe out the property's value entirely. For the borrower, escrow smooths out lumpy annual bills into a predictable monthly amount.
Lenders perform an annual escrow analysis to check whether the account is on track. If taxes or insurance rose, your monthly payment will go up to cover the higher annual outflow; if the account ran a surplus, you typically receive a refund check.
Related terms
Other terms you'll see alongside Escrow Account
The four components that make up a typical fully-escrowed monthly mortgage payment.
An annual tax levied by local governments on real estate, based on the property's assessed value.
Property insurance that covers losses to the dwelling, personal belongings, and liability, required by mortgage lenders.
Liquid funds the borrower must have available after closing, measured in months of full PITI payment.
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