Do You Have an Escrow Account, and What Does That Mean?

Buying a new home is exciting, and understanding all the details of your mortgage can be a bit overwhelming. One important thing home buyers should understand is what an escrow account is and how it works.

What is an Escrow Account?

An Escrow account is a separate account managed by your financial institution to pay certain expenses on your behalf.

Instead of paying these larger bills all at once, you make monthly contributions as part of your mortgage payment. The most common bills paid through your escrow account can include:

• Property taxes
• Homeowner’s insurance
• Flood insurance
• Mortgage insurance

Why Do I Have an Escrow Account?

Escrow accounts are designed to make your life easier and leave the details of certain payments to your financial institution.

The benefits include:

• Convenience – No need to plan for large, infrequent payments
• Budgeting – Spread payments out evenly over the year 
• Timely payments – Avoid the risk of late or missed payments
• Lender protection – Ensure taxes and insurance payments are current

What Does My Mortgage Payment Consist Of?

• Principal balance
• Accrued interest
• Taxes
• Insurance

Can My Total Mortgage Payment Change Even if I Have a Fixed Rate?

Yes! Your escrow account is reviewed annually, and your payment is updated to reflect any changes. Your principal and interest payment will stay the same, but your escrow payment can change over time. Escrow covers expenses such as property taxes and insurance. If your property taxes or insurance premiums increase, your monthly escrow payment will increase as well. As a result, your total monthly mortgage payment will go up to cover those higher costs.

An escrow account is designed to simplify your finances and give you peace of mind. To eliminate surprises, be sure to keep up with local tax changes and insurance premium increases. You could also benefit by shopping around for lower insurance premiums.

If you have questions about your escrow account and how it works, don’t hesitate to contact us with any questions you may have.

^{Equal Housing Opportunity Lender}