What is Mortgage Escrow?
If you own a home or are trying to own a home, you’ve probably heard the term “escrow” thrown around. So what is it? Let’s delve right in:
What is Escrow?
Escrow is an account that lets a borrower gradually accumulate money for property taxes and policy premiums. Many first time home buyers with less than a twenty percent down payment are required to have an escrow account so it reduces the risk of missed payments or foreclosure.
How Does Escrow Operate?
Essentially, an escrow account is a savings account. The only difference between a savings account and an escrow account is that you have to deposit a set amount into the escrow account each month, whereas with a regular savings account, you don’t have to. These monthly escrow payments accumulate, so that the lender can pay the property taxes and insurance premiums for the borrower.
What is the Benefit of Escrow?
If you have never owned a house before, having an escrow account is a great way to budget and gradually introduce yourself to all the costs associated with being a homeowner. Also, you won’t ever have to worry about your monthly bills, which can alleviate the pressure of missing a payment or making a late payment.
Will My Escrow Payment Always Be The Same?
No. Every year, your lender will do an analysis to see whether or not the amount you paid actually was enough to cover the insurance and/or tax bills that were collected during that time. Because rates change all the time and tax adjustments are always being made, your lender might need to readjust your payment to make sure you are covering all the costs.