What is an Escrow Account? – Redfin Real Estate Blog
Escrow accounts are not often discussed, but if you buy a home using a mortgage you’ll likely have one – either by choice or as a requirement of your loan.
In real estate, an escrow account is a separate bank account used by your lender to pay your property taxes and insurance.
Here’s how it works: You make monthly payments into the account at the same time you make your mortgage payment. Your lender manages the money and disburses the tax and insurance payments when they’re due.
Lenders often require escrow accounts as a way to protect their loan. If you were to fall behind on your property taxes, your home may be subject to a government lien and the lender’s stake in your property would be at risk. Similarly, if you failed to pay your homeowners insurance and disaster struck, the value of your property would evaporate, along with the lender’s investment. An escrow account ensures (for the lender) that your property is properly protected.
It can also benefit you as a consumer. For many people, an escrow account is the right choice; it’s easy to use, it simplifies your saving process and it’s relatively worry-free.