An escrow can be thought of as a non-interest bearing savings account. It is set up so that each month a specific, designated amount is placed in the escrow account from the mortgage payment. So when you find out what your mortgage payment will be each month and it seems higher than you expected, it is because a portion is going into your escrow account rather than only going towards the principal and interest.
What is the money used for?
The purpose of an escrow account is to make it easier to pay insurance and property taxes for your home. For example, property taxes are paid twice a year. Instead of worrying about finding money to cover your bill when you receive your property taxes, you pay extra on your mortgage payment each month and the escrow account pays the taxes automatically without you having to worry about it. You will still receive a property tax bill in the mail, but it should reference that it was sent to or paid by your mortgage provider. If you want to view your escrow account, you should be able to see your balances online if you have a login, or it should show in your statements.
What if I don’t have enough money in my escrow?
Your mortgage holder calculates how much you need to put in your escrow each month in order to cover the property taxes and insurance on your home. However, if you do not end up with enough due to an increase in property taxes you will be notified by your mortgage holder. You can either make a one-time payment to cover the difference or you can increase your mortgage payment each month. Note that if you decide to increase your payment you are not putting more towards principal or interest, it is covering the extra money that is needed in your escrow.
What if I have too much money in my escrow?
At the end of the year, if you have extra money in your escrow account you will be mailed a check for the difference. In other words, your escrow basically starts fresh each year. Your property taxes also tend to change each year so your monthly mortgage payment might also change. Again, this is not changing the amount that goes towards principal and interest.
Does it cost to use this service?
No, it does not cost anything to have an escrow account. In fact, you tend to get a better rate if you decide to have an escrow account. It is also important to note that you are required to have an escrow unless you have a down payment of 20% or more.
Find out more
If you would like to learn more about mortgages and/or escrow accounts, feel free to contact one of our mortgage officers by emailing firstname.lastname@example.org or calling 217-278-7700. We want you to feel right at home with the mortgage process because we’re proud to help our members achieve their financial goals.