What Is an Escrow Account?

"A common question from a lender to a borrower is "Would you like to escrow for your taxes and insurance"? This is a personal choice of the borrower, but just keep in mind there may be a small fee if you choose not to escrow. Many borrowers like to escrow. Basically escrowing is just taking your annual tax bill and your mortgage insurance premium, and including those in your monthly mortgage payment. Borrowers like to do this because they're not surprised by a large bill during the middle of the year or at the end of the year when premiums and tax bills are oftentimes due. Lenders like you to escrow because they're protecting their investment, it's easier for them to manage and monitor when taxes and insurance are being paid. They like to be the only ones holding liens against the property and delinquent taxes can sometimes cause liens against the property. Unpaid insurance premiums create risk, and lenders want to avoid this. A home at any time could be exposed to fire, natural disaster, and lenders just like to make sure that the home is insured and the taxes are paid."