What is an Escrow Account and How Does it Work?
If you're buying a home or refinancing, you've probably heard the term “escrow account” — but what exactly is it, and why does it matter?
If you're buying a home or refinancing, you've probably heard the term “escrow account” — but what exactly is it, and why does it matter?
An escrow account is like a special savings account set up by your mortgage lender to help manage two important homeowner expenses: property taxes and homeowners insurance.
Here’s how it works:
You make one monthly mortgage payment that includes your loan principal, interest, and a portion for taxes and insurance.
The lender holds that tax and insurance portion in your escrow account.
When your taxes or insurance premiums are due, the lender pays them directly from the escrow account on your behalf.
Why use escrow?
✅ Convenience – No surprise bills for taxes or insurance; it’s all rolled into your monthly payment.
✅ On-time payments – Your lender makes sure nothing is missed, helping you avoid penalties.
✅ Lender requirement – Most lenders require escrow on loans with less than 20% down.
A note on escrow analysis:
Each year, your lender will review your escrow account to make sure you’re putting in enough (but not too much). If taxes or insurance increase, your monthly payment may go up to cover the shortage.
Bottom line: An escrow account helps keep you organized and on track — and for many homeowners, it’s a stress-free way to manage key housing expenses.
Need help understanding your current escrow setup or want to estimate your total monthly payment? Let’s connect — I’d love to walk you through it!