What is an Escrow Account?
Answer:
Escrow accounts are setup by mortgage lenders
or attorneys, wherein a portion of a borrower’s monthly payments are held to pay for real estate taxes and insurances. Since yearly taxes and insurances are likely to increase, the monthly amount reserved for escrow will adjust to accommodate any increase. The money placed in an escrow account must be used for the purpose specified. Hence, a mortgage lender, attorney, or consumer cannot borrower funds from escrow to pay miscellaneous fees.

The majority of lenders require an escrow account. However, it is possible for a lender to waive escrow. If this happens, it is the borrower’s responsibility to save for their yearly taxes and insurances. When given the option to waive escrow, some borrowers choose to keep an escrow account since their taxes and insurances are automatically paid from the account. This way, they do not have to plan and save money for these expenses. 

Many escrow accounts gain yearly interest. However, to receive interest, the account must meet certain requirements. For example, the escrow account must be setup for a residential property. Secondly, a bank, savings and loan company, mortgage banker, or credit union must have originated the loan. In addition, the mortgage lender must require an escrow account. Individuals who voluntarily escrow cannot receive interest. Lastly, the escrow account must be used to pay taxes and insurances.

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