What is Escrow?

An escrow account is a special type of bank account that's typically used to hold funds, such as property taxes and insurance payments, on behalf of a borrower. It's often required by lenders as part of a mortgage loan, to ensure that the borrower has sufficient funds to pay for property-related expenses.

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When a borrower makes a mortgage payment, a portion of the payment is deposited into the escrow account to cover property taxes, homeowner's insurance, and other related expenses. The lender then uses the funds in the escrow account to pay these bills on behalf of the borrower.

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The purpose of an escrow account is to ensure that the borrower has the funds available to cover these expenses, and to prevent the borrower from falling behind on payments. It also provides a convenient way for borrowers to pay for these expenses, as they don't have to worry about making separate payments throughout the year.

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The amount of funds required in the escrow account is typically determined by the lender, based on the estimated cost of property taxes and insurance for the year. The escrow account is typically reviewed and adjusted annually to ensure that there are sufficient funds to cover these expenses.

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In summary, an escrow account is a special bank account used to hold funds for property-related expenses, such as property taxes and insurance payments. It's often required by lenders as part of a mortgage loan, to ensure that the borrower has sufficient funds to cover these expenses and to prevent the borrower from falling behind on payments.