escrow account
An account held by the mortgage servicer collecting monthly portions of property taxes and insurance to be paid when due.
Example
“The escrow account collected $400 monthly for property taxes and homeowners insurance.”
Memory Tip
ESCROW — the servicer holds your tax and insurance money and pays it when due.
Why It Matters
Understanding escrow accounts helps you budget accurately for homeownership costs since your monthly mortgage payment includes property taxes and insurance bundled together. This prevents the shock of large bills arriving separately and ensures these critical obligations are paid on time, protecting your home and maintaining your mortgage agreement.
Common Misconception
Many people believe the escrow account is their own savings account where they can withdraw money if needed. In reality, the funds in escrow belong to you but are held and managed by the mortgage servicer specifically to pay taxes and insurance, and you cannot access these funds for other purposes.
In Practice
If your annual property taxes are 2400 dollars and homeowners insurance is 1200 dollars, your servicer collects 300 dollars per month in escrow 2400 plus 1200 divided by 12. When taxes and insurance are due, the servicer pays them directly from this account, keeping your payments consistent and ensuring these bills never go unpaid.
Etymology
From Old French 'escroue' meaning a scrap of writing — a document held by a third party.
Common Misspellings
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