What is an escrow account?
An escrow account is one into which funds are deposited monthly as part of your payment. The funds will be used to pay future real estate taxes, property insurance premiums, flood insurance or private mortgage insurance premiums (if applicable) and any other expenses as described in your mortgage.
• It is an account we open, into which you make monthly payments for property taxes, insurance, or other assessments. We pay these items from the escrow account as they become due. An escrow account is sometimes known as an “impound account”. The portion of your monthly mortgage payment that is deposited to the escrow account is called the escrow payment.
When borrowers make their monthly mortgage payments, they generally also pay one-twelfth of the anticipated annual amount needed to pay taxes and insurance premiums. These additional funds are deposited into an escrow account until the lender pays the taxes and insurance premiums as they come due. The borrower benefits for budgeting reasons because costs are spread through the year rather than as a lump sum. This method allows the lender greater control in avoiding tax delinquencies or lapses of hazard insurance coverage on the property. Mortgage documents often stipulate lenders to establish an escrow account.
An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses escrow account funds on behalf of the borrower when they become due. Also known as Impound Account.
