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Mortgage lenders may establish an escrow account as part of your home loan. Funds are collected as part of your monthly payment to pay certain expenses related to the property financed.

Escrow account basics

Mortgage escrow accounts are special accounts set up in which money is held to pay property taxes, fire and hazard insurance premiums, mortgage insurance premiums, and other escrow items.

Escrow accounts ensure that these items are paid in a timely fashion. They guarantee that there is always enough money to pay these bills when they are due so that the homeowner avoids the risk of lapsed insurance coverage or delinquent taxes. With escrow accounts, homeowners do not have to worry about coming up with several large, lump-sum payments, each with different due dates, throughout the year.

Mortgages have lower rates and down payments because of escrows accounts. Escrows accounts protect the interest of investors of home mortgage loans by making them more attractive and secure as investments. Escrow accounts also benefit local governments by providing a more efficient, less expensive means of tax collection.

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