What Is an Escrow Account (Mortgage Escrow)
Mortgage escrow explained: how lenders collect property tax and insurance monthly, the annual escrow analysis, shortages, and when escrow is required.
Last updated: 2026-07-25
With most mortgages, part of your monthly payment is not for the loan at all — it goes into an escrow account the lender uses to pay your property taxes and homeowners insurance when they come due. It spreads two big annual bills into manageable monthly amounts.
How it works
The lender estimates your yearly tax and insurance, divides by twelve, and adds that to your principal-and-interest payment. When the bills arrive, the lender pays them out of the account on your behalf, so you never face a large lump sum yourself.
The annual analysis
Once a year the servicer reviews the account. If taxes or insurance rose, there may be a shortage and your monthly payment goes up; if too much was collected, you get a refund. Lenders are also allowed to keep a small cushion, which is why the balance never runs to zero.
Is it required?
- Escrow is commonly required when your down payment is under 20% or on government-backed loans.
- With enough equity, some lenders let you waive escrow and pay taxes and insurance yourself.
- Waiving it means lower monthly payments but the discipline of budgeting for the big bills on your own.
See how taxes and insurance fold into your full monthly payment with the calculators below.