If you have a mortgage, an escrow account is a separate account your mortgage servicer uses to collect and pay two big recurring bills on your behalf: your property taxes and your homeowners insurance.
How a mortgage escrow account works:
- Your monthly mortgage payment includes more than principal and interest — a portion also goes into escrow.
- The servicer holds those funds in the escrow account.
- When your property tax and insurance bills come due, the servicer pays them from escrow.
- Once a year, the servicer reviews the account — an escrow analysis — and adjusts your monthly amount if taxes or insurance premiums have changed.
This is why a mortgage payment is often described as PITI: Principal, Interest, Taxes, and Insurance.
Escrow shortages and surpluses: if costs rose and your escrow ran low, you may have a shortage to make up, and your monthly payment may increase. If you overpaid, you may receive a surplus refund.
Why escrow is useful: it spreads two large annual bills into manageable monthly amounts and ensures your taxes and insurance are paid on time.
A related meaning: "escrow" is also used during a home purchase, when a neutral third party holds funds and documents until closing. The account described here is the ongoing one tied to your mortgage.
Learn more about the home loan process when you apply for a mortgage with RMO.