An escrow account is an account your mortgage servicer uses to help pay certain homeownership expenses on your behalf.
When you make your monthly mortgage payment, part of that payment may be deposited into your escrow account. The servicer then uses those funds to pay expenses such as property taxes, homeowners insurance, and flood insurance when required.
Why Do Lenders Use Escrow Accounts?
Instead of receiving a large property tax or insurance bill and paying it all at once, an escrow account allows you to contribute toward those expenses throughout the year as part of your monthly mortgage payment.
Your total monthly payment may include principal, interest, taxes, and insurance, often referred to as PITI.
Can My Escrow Payment Change?
Yes. Even if you have a fixed-rate mortgage and your principal and interest payment stays the same, your total monthly payment can change.
Property taxes and homeowners insurance premiums can increase or decrease. Your mortgage servicer typically reviews your escrow account periodically and adjusts the amount being collected when necessary.
Do I Have to Have an Escrow Account?
Not always. Escrow requirements depend on the loan program, down payment, loan-to-value, and lender guidelines. Some loans require an escrow account, while certain conventional loans may allow you to waive escrow if specific requirements are met.