An escrow account is a designated savings account into which funds get deposited for a specific purpose.
With respect to real estate and home loans, escrow accounts are used to pay real estate tax bills and homeowners insurance payments.
Escrow accounts are managed and disbursed by lenders.
When a homeowner “escrows” his mortgage, along with his scheduled monthly mortgage payment, he must also send an additional payment to the lender equal to 1/12 of the home’s annual real estate tax bill plus 1/12 of the annual homeowners insurance bill.
By sending a pro rata portion of the tax and insurance bill each month, the homeowner’s escrow account will always, in theory, have enough funds to make payments in full as tax bills and insurance premiums come due.
In Indianapolis, taxes are currently behind and the amount you have escrowed may not cover the amount of the certified taxes when they are posted.
{ 6 comments… read them below or add one }
If I deposit my money with an escrow account, am I going to get some other feed backs except paying the tax bills and insurance payments. Is it possible to get some interest?
I also find that the escrow account is a great way for your mortgagee to fail at simple math. It definitely pays to keep tabs on the balances and your amount.
Capitola – I know some states offer an interest bearing account,so the answer is; it depends on where you live. Thanks for stopping by!
Snow Accommodations – Now, that’s funny
and true!
Your article about escrow account is highly informative, however I don’t understand why the escrow accounts are managed by lenders.
Thanks for the info. I think escrow account is a great way for keeping money that is the property of others.
This account is very beneficial to home owner. Indeed it is better than saving account. Through this account it is become easy to pay taxes and insurance of your home. Thanks for sharing such a nice stuff here.