What Is Escrow?
An account held by the lender to pay your property taxes and insurance from monthly mortgage payments.
Definition
An escrow account is a holding account where your lender deposits a portion of each mortgage payment to pay your property taxes and homeowners insurance when those bills come due. Most lenders require escrow on loans with LTV above 80%, and many require it for all loans. The benefit: you pay tax and insurance bills in small monthly chunks instead of large annual lump sums. The downside: escrow analyses can produce surprise shortages or refunds when tax assessments change.
Example
Property tax of $4,800/year and insurance of $1,200/year means your lender adds $500/month to your mortgage payment for escrow.
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Try the Mortgage CalculatorRelated Terms
PITIThe four components of a typical mortgage payment: Principal, Interest, Taxes, Insurance.Closing CostsFees paid at the closing of a real estate transaction, typically 2-5% of the loan amount.PMI (Private Mortgage Insurance)Insurance lenders require on conventional loans when your down payment is below 20%.