Escrow accounts are used to pay property taxes, insurance, and other charges. Your mortgage company usually creates the account for you. Your taxes and insurance are part of your monthly mortgage payment. These are placed in your escrow account. The money stays there until it’s time for the mortgage company to pay your property taxes and insurance premium.
Benefits of an Escrow Account
An escrow account helps you:
- Manage your budget. You do not have to make large payments for taxes and insurance. You already made monthly payments over the year to cover these expenses!
- Gain peace of mind. You don’t need to worry about when your tax and insurance bills are due. The payments are made on your behalf.
- Protect your home. Your insurance and taxes will not slip. This helps protect your ownership. Most mortgage companies require escrows for some mortgages. This is usually when you don’t put 20 percent down.
How an Escrow Account Works
You pay your mortgage each month. This includes loan payments. It also includes your property taxes and insurance. Your mortgage company places the amount for taxes and insurance into an escrow account. They use this money to pay taxes and insurance on your behalf.
Here is a sample of how escrow payments work:
- Yearly real estate taxes: $1,800 ÷ 12 months = $150 per month
- Yearly property insurance: $720 ÷ 12 months = $60 per month
- Total monthly payment: $210
Here, $210 would be added to your total monthly mortgage. This will be put in your escrow account. You might hear your total monthly mortgage payment referred to as your “PITI”. This means principal, interest, taxes, and insurance.
Need Help With Housing Decisions?
Talk to one of GreenPath’s housing experts. They will help you look at your entire financial picture and can also provide valuable information on securing a loan and staying out of debt in the future. Owning a home — or borrowing against it — is a big step in your financial journey. GreenPath’s housing counselors will empower you with the knowledge to reach your goals.
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