In personal finance, an account that temporarily holds money for property taxes and homeowners insurance is an escrow account.
With a mortgage escrow arrangement, the borrower pays amounts toward taxes and insurance along with the mortgage payment. The mortgage servicer holds those funds and pays the bills when they are due. This spreads large annual or semiannual expenses across regular monthly payments.
Escrow requirements vary by lender, loan type, location, and borrower circumstances. The monthly amount can change when tax assessments or insurance premiums change, which may cause the total mortgage payment to rise or fall even when the loan’s interest rate is fixed.
Escrow also has broader legal uses, such as holding money during a property transaction until specified conditions are met. Therefore, not every escrow account is a mortgage tax-and-insurance account; the agreement determines its purpose.