What is an escrow account?

Think of an escrow account as a savings account that your lender holds for you. It’s an easy way for both you and your lender to manage property taxes and insurance premiums for your home.

• Part of your mortgage payment goes to your principal and interest.

• Part goes into your escrow account for property taxes and insurance premiums (like homeowner’s insurance, mortgage insurance, or flood insurance).

When those bills are due (taxes, insurance, etc.), your lender will use the funds in your escrow account to pay them for you. 

Don't worry about sending the lender your tax or insurance bills – they usually get a copy from your local property tax office and insurance company. If the lender needs anything from you, they will let you know.

Yearly escrow review

Property taxes and insurance premiums will change every year. Your lender will review your escrow account each year to make sure you’ll have enough to cover these changes. During the escrow account review, the lender will figure out how much will be in your account each month for the next 12 months. If it’s projected to be:

• Below the minimum balance, you’ll have a shortage. 

• Above the minimum balance, you’ll have an overage. 

Your lender will send you a statement after each review to let you know of any changes to your account. Typically, with a shortage, your monthly mortgage payment will go up to cover the difference. With an overage, your monthly payment will decrease and/or you will get a check for the extra funds in your escrow account from your lender.