An escrow account is an account that is set up on your behalf when you get a mortgage for your home. You can think of a mortgage escrow account as a savings account setup on your behalf by your mortgage company. Each month you pay money into your escrow account as part of your mortgage payment. If you look at your monthly mortgage statement you will notice something called: "Escrow Payment". This is the amount that you pay into your home escrow account monthly.
The funds held in an escrow account are used to pay your annual real estate taxes and your home ownwers insurance. The Escrow Account is typically held by the Mortgage Servicing Company - which is the company or entity to which you send your mortgage payments.
How A Mortgage Escrow Account Works?
For as long as you have your mortgage, each month you will be required to make a monthly payment to your mortgage company. Part of the payment you make is your escrow payment, if you have an escrow account set up. The escrow payment is credited to your escrow account. Over time as you pay into this account, the account balance grows. Then at certain times of the year when it comes time to pay your real estate taxes or renew your home owners insurance the mortgage servicing company will deduct what it needs from your escrow account to pay your taxes and insurance.
Annually around January of each year your mortgage company will send you an annual account statement of your escrow account activity. This will show you when payments were made into the escrow account and when payments were made from your account to pay your real estate taxes and insurance.
For the purposes of this article, escrow account is the same as home escrow account and mortgage escrow account. For more information on U.S. regulations about escrow accounts visit the HUD website section called: FAQs about Escrow Accounts for Consumers
Article by Dale Stouffer, Mortgage Broker. Dale has been a mortgage broker since 1996. This Article is designed to be of general interest and should not be considered accounting, legal, or tax advice. The specific information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal attorney, tax adviser, or accountant.
