Escrow Account
A mortgage escrow account is a holding account managed by your loan servicer that collects a portion of your monthly payment to cover property taxes and homeowners insurance. When those bills come due, the servicer pays them directly. Escrow accounts ensure these critical payments are never missed and are required on most low-down-payment loans.
Each month, your total mortgage payment (called PITI — principal, interest, taxes, insurance) includes an escrow portion calculated by dividing your annual tax and insurance bills by 12, plus a small cushion (up to 2 months) required by federal law (RESPA). If your annual property taxes are $6,000 and insurance is $1,800, your monthly escrow contribution is approximately $650.
Servicers perform an escrow analysis at least once per year. If they undercollected (taxes or insurance rose), they'll bill you for the shortage and increase your monthly payment. If they overcollected, federal law requires them to refund surpluses above $50 within 30 days.
Some borrowers prefer to manage taxes and insurance themselves — this is called 'waiving escrow.' Most lenders allow this for conventional loans with 20%+ equity, sometimes charging a small fee (typically 0.125–0.25% of the loan amount). If you waive escrow, set up automatic savings or a dedicated account to ensure funds are available when large tax bills arrive.
Key Takeaway
A mortgage escrow account is a holding account managed by your loan servicer that collects a portion of your monthly payment to cover property taxes and homeowners insurance. When those bills come due, the servicer pays them directly. Escrow accounts ensure these critical payments are never missed and are required on most low-down-payment loans.
Related Terms
Frequently Asked Questions
The most common reason is an increase in property taxes or homeowners insurance, which raised your escrow contribution. Your servicer will send an escrow analysis showing the change.
If your down payment was 20% or more, many lenders allow you to waive escrow, though sometimes for a fee. FHA loans typically require escrow for the life of the loan.
Log into your loan servicer's portal to see your current balance. Your servicer is required to send you an annual escrow account statement.
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