Escrow

In a mortgage context, escrow refers to the account your lender uses to manage property taxes and homeowners insurance on your behalf. Rather than facing a large tax bill once or twice a year, you pay one-twelfth of the estimated annual amount with each monthly payment. The lender holds that money and pays the tax authority and insurer when the bills arrive. This is the T and I in a PITI payment.

Lenders require escrow on many loans because unpaid taxes and lapsed insurance threaten the collateral behind the loan. Each year the servicer reviews the account and adjusts your monthly amount if taxes or premiums changed, which can make your total payment rise even on a fixed-rate mortgage. The word escrow is also used more broadly for funds held by a neutral third party during a home purchase. Our guide to how mortgage amortization works explains where escrow sits alongside principal and interest.