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06/21/2022

Exactly What is Escrow in a Mortgage?



Exactly What is Escrow in a Mortgage?
A Simple Mortgage Escrow Guide.


Understanding what “escrow” means and how it works for you and your mortgage

Until they buy a home, many Americans never encounter the term “escrow,” let alone know what it means. If you’re in the same boat, don’t worry – we’ll break down what escrow is and how it can affect your mortgage here.

Buying a house means keeping track of a lot of moving pieces and costs. Escrow can benefit homeowners as it assures you always have the funds prepared for fees typically paid annually, including taxes and insurance. It also ensures that those payments will automatically be made on time.

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Escrow in a nutshell

Escrow is a process where money is held for some predetermined condition or obligation. Escrow is often used in the home buying/closing process, but we’re only addressing escrow accounts related to mortgages in this article. In a typical mortgage, additional escrow money is collected on top of the periodic principal and interest payment and deposited in a separate escrow account. The funds in this account are held until they’re needed to pay property taxes and home insurance fees.

Who manages escrow accounts?

Mortgage servicers manage mortgage and escrow payments until your home loan is paid in full. They collect your mortgage payments, maintain records, and manage the mortgage’s escrow account for property tax and insurance purposes. Depending on your mortgage arrangement, the mortgage servicer may also be the originating lender, but this isn’t always the case.

What is an “escrow balance”?

When you buy a home or other real estate and begin making mortgage payments, you may come across a term called the "escrow balance.” This balance is the money held in an escrow account in preparation for periodic insurance and tax payments. In some areas of the US, this might be called an "impound account."

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The benefits of having an escrow account

With an escrow account, your monthly mortgage payment doesn’t just go toward paying down the mortgage loan’s principal balance and interest. It also covers property taxes and homeowners’ insurance.

To keep things simple, most homeowners make their mortgage payments to their mortgage servicer. The servicer then takes the required escrow amounts from the monthly mortgage payment and puts that money into the escrow account. That money is used to pay for property taxes and insurance bills. When tax and insurance bills come due, the mortgage servicer pays them automatically using the money earmarked for it in the escrow account. This way, homeowners don’t have to remember to pay those costs when they come due. They already accounted for them with their monthly mortgage payments.

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Contact 21st Mortgage Today!

Escrow is an important part of real estate mortgages, and it helps you to regularly pay taxes and fees once you become a homeowner. Loans from 21st Mortgage require escrow accounts. We use these accounts to cover the cost of annual property taxes and insurance payments. As you’ve learned here, escrow is nothing to worry about, and escrow services can make your life easier.

As the number one manufactured and mobile home lender for 12 years running, we’ve helped millions of Americans buy quality homes perfect for their needs. We walk each of our clients through every step of the process, and, since we do not sell our loans, we will be here for you for the life of your home loan.*

Still have questions about how escrow works or want to learn more about our lending services? Contact us online or fill out a manufactured home application today!

*Over the last five years, we have retained ownership of more than 95% of our loans.