How does an escrow account work?
An escrow account is a separate account that holds funds for the purpose of paying bills such as homeowner’s insurance and property taxes.
Funds to cover these expenses are deposited into the account each month along with your monthly payment and then pays the bills for you when they come due.
By taking the annual amounts charged for homeowner’s insurance, property taxes and other annually paid items and dividing them by 12, the escrow department establishes a payment amount that is added to your monthly principal and interest payment.
Spreading the cost of these expenses over 12 months makes it easier for you to budget those expenses, and you won’t have to come up with additional cash when bills are due.
For some loans, escrow accounts are a requirement.
Additional Mortgage FAQs
- How does an escrow account work?
- What are Discount Points (or Points)?
- What are the common fees through the mortgage process?
- What are the steps in the Mortgage Process?
- What is a Loan To Value Ratio (LTV)?
- What is a Rate Lock or Lock In?
- What is a Truth-in-Lending Disclosure and why do I receive it?
- What is Private Mortgage Insurance (PMI)?
- What is the difference between a Mortgage Broker & Mortgage Banker?
- What is the difference between Interest Rate & APR?