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What is an escrow account?

An escrow account, sometimes called an impound account, is set up by your mortgage lender to pay certain property-related expenses such as property taxes and insurance premiums. The money comes from a portion of your monthly mortgage payment.

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Why you are seeing it
It appears on a mortgage statement and in the notices your lender sends about your payment.
Why it matters
It explains part of your monthly payment: money that is set aside for property taxes and insurance rather than paid toward the loan itself, so the payment can change when those bills change.
What should I do?
  • Open your mortgage statement and find what part of the payment goes to escrow.
  • If the payment changed, read the notice from your lender to see which bill changed.
  • If something is unclear, ask your lender, who can tell you which bills the account pays.
A common misunderstanding
A change in the escrow part of the payment does not mean the loan itself changed: the account follows the tax and insurance bills.
Other meanings
In real estate, "escrow" can also mean a neutral party that holds money during a sale. This page is about the account your mortgage lender uses for taxes and insurance.

What it is and what it pays

Your mortgage lender sets the account up and uses it to pay certain property-related expenses on your behalf. The CFPB names property taxes and insurance premiums. Part of each monthly mortgage payment goes into the account, and the lender pays the bills from it when they are due.

Why the payment can change

Property taxes and insurance premiums can change from year to year. When they do, the amount that has to go into the escrow account can change too, so the part of your monthly payment that goes to escrow can change even when your loan itself stays the same.

A simple example

A payment with an escrow part

Say a monthly mortgage payment is $1,900 and $400 of it goes into escrow for taxes and insurance.

If the yearly bills rise, the escrow part of the payment can rise, for example to $430, and the total would be $1,930.

These numbers are made up to show the idea: your own figures are on your mortgage statement.

Where to look

  • Your mortgage statement shows what part of the payment is going to escrow.
  • Your lender can tell you which bills the account pays and when the amount is reviewed.

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