Escrow
An account your lender uses to collect and pay property taxes and insurance on your behalf, spreading those bills across your monthly payment.
What does escrow mean?
Rather than leaving you to save for a big annual tax or insurance bill, the lender collects one-twelfth of it inside each monthly payment and holds the money in an escrow account, then pays the bills when they come due. That is why your payment can change year to year even on a fixed-rate loan — taxes and premiums move. Lenders re-analyze the account annually and refund or collect any shortfall.
Frequently asked
Why did my mortgage payment go up if my rate is fixed?
Almost always because of escrow. Your rate and principal-and-interest stay fixed, but the property taxes and insurance collected into escrow rise over time; when they do, the lender raises the escrow portion of your payment to cover them.
Is an escrow account required?
Often yes — most lenders require one when your down payment is under 20%, and FHA loans always do.
With more equity you can sometimes waive it and pay taxes and insurance yourself, though the lender may charge a small fee to do so.
What is an escrow shortage?
When your actual tax or insurance bills come in higher than the lender collected, the account runs short. At the annual re-analysis the lender spreads that shortage across your next payments, which is a common reason a payment jumps.
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