ALL ABOUT MORTGAGE ESCROW

This account ensures that you pay your bills for home insurance and property taxes.

- DEBORAH KEARNS

WHEN you finance your home with a mortgage, your lender will likely require you to maintain an escrow account. With this setup, a portion of your monthly mortgage payment is set aside to cover your annual property taxes and home insurance premiums.

Lenders want to protect their financial investment when they loan you money; an escrow account acts as a forced savings account to ensure those property expenses are paid on time and in full, says Ed Santiago, a branch manager with Fairway Independent Mortgage in Wayne, Pa.

Lenders hold back one-twelfth of the estimated annual expenses each month to pay your taxes and insurance. Some lenders require an additional cushion of up to two months’ worth of expenses to avoid potential escrow shortages. If you end up with an overage because you get a cheaper insurance policy or your property taxes decrease, your lender will send you a refund check.