What is an Escrow Account?

What is an escrow account?

1 Answer

An "escrow" account is an account separately maintained by your servicer (the one to whom you make your payments) in order to accumulate money for, and pay, items like real estate taxes, home owner's insurance, or mortgage insurance.

If you pay the above items as part of your monthly bill, chances are you have an escrow account. In my area, for instance, real estate taxes are actually only due 4 times per year. So, as the homeowner pays the servicer, the money for taxes builds up monthly in the escrow account. Then the servicer sends out the money for the tax bills only when they are due.

Most lenders try to stay 2-3 months ahead on your account, so that if you ever miss a payment, or the taxes or insurance go up, eveything still gets paid on time. This "extra" is usually collected at closing.

Your escrow account should be earning interest (albeit nominal), and any surplus / balance is returned to you when you close out the loan. In many cases, your mortgage statement will include your current escrow account balance. If it does not appear, you can get this information from your servicer, (usually) free of charge.