Escrow
Also called: escrow account, impound account
Escrow usually refers to a mortgage escrow account: money your lender or servicer collects with each monthly payment and uses to pay property taxes and homeowners insurance for you. Some places call it an impound account.
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How it works
Instead of paying a large tax bill or insurance renewal once or twice a year, you pay a share of those costs each month along with principal and interest. The servicer holds the money and pays the bills when they come due. Many lenders require an escrow account for taxes and insurance, and in some cases the law requires one. Without escrow, you pay those bills directly and plan for them yourself.
Property taxes and insurance premiums can change from year to year, and when they do, the escrow part of your payment changes with them, even on a fixed-rate loan. A higher tax bill or insurance renewal generally shows up as a higher monthly payment. Comparing the servicer’s escrow figures with the actual tax and insurance bills is the most direct way to see why a payment moved.
Paying these bills yourself means tracking the due dates. If you do not have an escrow account and miss a tax or insurance payment, your lender may add the unpaid amount to your loan, set up an escrow account, or buy insurance on the home itself, called force-placed insurance, which typically costs more than coverage you buy yourself. At closing, you may also pay an initial escrow deposit to start the account.
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Sources and further reading
Examples are illustrative and focus on U.S. personal finance. This page is educational, not individual financial, investment, tax, or legal advice. Read our editorial approach or report a correction.