An escrow account is commonly used to collect and pay certain property-related expenses, such as property taxes and homeowners insurance. If your mortgage includes escrow, part of your monthly payment goes into this account.
How escrow works
Your mortgage servicer may collect a portion of your estimated annual taxes and insurance each month. When those bills are due, the servicer uses the escrow account to pay them on your behalf.
What escrow may include
- Property taxes
- Homeowners insurance
- Mortgage insurance, in some cases
- Flood insurance, if required
Why escrow affects your monthly payment
Your total mortgage payment may include principal, interest, taxes, insurance, and other required items. Even if your principal and interest payment stays the same, your total payment can change if taxes or insurance costs change.
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What is an escrow analysis?
An escrow analysis is a periodic review of your escrow account. If taxes or insurance increase, your monthly payment may rise. If there is a surplus, your servicer may reduce the payment or issue a refund, depending on the account and applicable rules.
Can you avoid escrow?
Some borrowers may be able to waive escrow depending on loan type, down payment, lender requirements, and other factors. If escrow is waived, the homeowner is responsible for paying taxes and insurance directly.