Mortgage

Escrow Account A lender-held account that pays your property taxes and homeowners insurance from your mortgage payment

Priya Shah By Priya Shah, Senior Mortgage Editor · Updated 2026-06-09
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An escrow account is a lender-held account that collects part of each mortgage payment to pay your property taxes and homeowners insurance when those bills come due. It's bundled into your monthly payment as part of PITI (principal, interest, taxes, and insurance), so you don't have to save separately for big annual or semiannual bills. Your lender estimates the yearly cost, divides it across 12 months, and disburses payments on your behalf. Each year the lender runs an annual escrow analysis to compare what was collected against what was actually paid. If taxes or insurance premiums rose, you may face a shortage and a higher monthly payment; if too much was collected, you may receive a surplus refund. Amounts vary by state, property value, and local tax rates, so your escrow portion can change from year to year.
Also Known As
Impound account Reserve account Tax and insurance escrow PITI escrow
Used in Context
  1. After her property taxes jumped, the annual escrow analysis showed a shortage and her monthly payment went up by about $40.
  2. First-time buyers comparing offers through Dreamy Leads often ask whether an escrow account is required or optional on their loan.
  3. His lender sent a surplus refund check because the homeowners insurance premium came in lower than the prior year's estimate.
Related Terms
Mortgage PITI (Principal, Interest, Taxes, Insurance) The four parts of your monthly mortgage payment that lenders use to judge what you can afford Mortgage Title Insurance A one-time policy that protects against hidden defects in a property's title Mortgage Closing Costs The upfront fees you pay to finalize your mortgage at closing Mortgage Amortization The schedule that shows how each loan payment splits between principal and interest over time Mortgage Jumbo Loan A mortgage that exceeds the FHFA conforming loan limit and can't be bought by Fannie Mae or Freddie Mac Mortgage Earnest Money A good-faith deposit that shows a home seller you're serious about buying Mortgage Mortgage Recast Lower your monthly payment by paying down principal without refinancing
Frequently Asked Questions

Is an escrow account required on every mortgage?

Not always. Requirements vary by loan type, down payment, and lender. Many conventional loans let you waive escrow if you meet certain conditions, while some government-backed loans require it. When you waive escrow, you pay property taxes and homeowners insurance directly yourself.

Why did my escrow payment go up this year?

Your lender runs an annual escrow analysis comparing collected funds to what was actually paid. If your property taxes or homeowners insurance premiums increased, the account can run short, so your monthly payment rises to cover the higher costs and rebuild the required balance.

What happens to extra money in my escrow account?

If the annual analysis shows you paid in more than was needed, you have a surplus. Depending on the amount, your lender typically refunds it to you or applies it toward upcoming payments. Shortages, by contrast, are usually spread across your next year of payments.

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