The second time you’ll hear about escrow is when it comes to your monthly mortgage payment. In addition to principal and interest, your mortgage payment includes amounts for property taxes, homeowners insurance and mortgage insurance (if applicable).
Your mortgage lender or servicer will collect those funds in an escrow account and then pay out your taxes and insurance when they are due. If not for this escrow fund, you would have to budget for these large annual expenses yourself.
Your property taxes will likely change at least slightly from year to year. Each year, your lender or servicer will review your escrow account to make sure they’re collecting the right amount from you to cover taxes and insurance and will adjust the amount for next year if needed.
So, that’s escrow in a nutshell! Feeling confident you understand the process of buying a home and all that pesky vocabulary that goes with it? Take our homebuyer readiness quiz to assess your own knowledge.
