What is Tax and Insurance Escrow

Mortgage companies use an escrow account to pay for homeowners' insurance and property taxes in addition to the escrow procedure that is used to make sure that all the conditions of the sale have been satisfied. The term "tax and insurance escrow" or "impound account" are both used to describe this kind of escrow.

Lenders often require that you open an escrow account when you apply for a mortgage to buy a home. In order to cover your property taxes and insurance, a portion of your monthly mortgage payment is deposited into this account.

To ensure that the appropriate amount of money is being gathered in the escrow account to cover the bills when they are due, the lender will normally perform an annual escrow analysis. The lender may ask you to contribute more money to the account by raising your monthly payments if the analysis reveals that there is a deficiency. The lender may also reduce your monthly payment or reimburse you for the excess funds if the account contains too much money.

This kind of escrow account guarantees that you won't forget to pay your property taxes and insurance.  Additionally, it helps homeowners budget for these expenses in a more predictable and controllable way.

In summary, a mortgage company uses escrow to pay for insurance and real estate taxes. It is often referred to as an "impound account" or "tax and insurance escrow." When you obtain a mortgage, this kind of escrow account is often established, and a portion of your monthly mortgage payment is set away to pay for these expenses when they become due. This enables homeowners to effectively budget for and plan for these costs.

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