Mortgage Escrow Accounts
Your mortgage lender will maintain an escrow account in order to pay the annual taxes and insurance on your property. Approximately one-twelfth of the estimated cost of taxes and insurance is paid into the account each month from the borrower’s monthly payment. When the taxes are due, usually twice a year, the lending institution pays the amount due. The same thing occurs for the insurance payment. The lending institution does this service for you so that it can ensure that taxes and insurance premiums are paid on time.
You could call it a budgeting device which requires the borrowers to set aside money to pay their taxes and insurance when due. If there is not enough money in the escrow account at the time the payments are due, sometimes the lenders will advance the funds at no charge and then send you a notice of an adjustment to your payments to stop the shortfall of money to pay the taxes and insurance. You can expect your mortgage payments to go up or down depending on how much is owed during the year for taxes and insurance.
To be continued….