What is an Escrow Account?
What is an escrow account? And why is it a part of my mortgage? an escrow account is basically a savings account that is attached to your mortgage.
You have to have it for some loan types because the lender wants to make sure that the property taxes and homeowners insurance gets paid on the property. How does it work? What happens is every month, in addition to the principal and interest payment that you make to pay off your loan to pay off your mortgage, you will have 12 of your homeowners insurance and 12 of your property taxes added to that payment.
What does that look like? Let's say that your annual homeowners insurance is $1200 a year and your taxes are $20400. What that means is that $300 will be added to your monthly mortgage payment. Each month that balance builds, and then that way when your homeowners insurance bill is due, it's paid out of that account because you paid into it every month and the same thing for your taxes. This way, it helps you to kind of spread out those larger bills of owning the home the insurance and taxes over time and work it into your monthly budget because it's part of your monthly mortgage.
If you have any questions about your escrow account or anything like that, I am here to help and I would love to talk.