How does an escrow account work?
An escrow account acts like a savings account maintained by the lender. Monthly deposits, which are built into your mortgage payments, are made to your escrow account for future disbursements of your property taxes and/or insurance premiums. American Home Mortgage Servicing Inc. will use the funds deposited to pay your property taxes and insurance premiums as they become due. Please note: Escrow accounts provide only for property taxes on parcels secured by your mortgage and/or insurance that is required by your mortgage. Example: If your property were not in a flood zone, flood insurance would not be required on your property, but if you choose to carry flood insurance, funds collected in your escrow account would not pay for this type of insurance.
At the time you establish an escrow account, your annual real estate taxes and homeowner’s insurance are estimated, based on your most recent bills and premiums. An incremental amount of these expenses is added to your monthly mortgage payment, in order to cover these expenses when they are due. Each year, your escrow account is reviewed to determine if the amount being escrowed each month is sufficient to pay for any change in your real estate taxes or homeowner’s insurance premiums.
