Mortgage escrow accounts are
special accounts set up in which money is held to pay for property
taxes, fire and hazard insurance premiums, mortgage insurance
premiums, and other escrow items. Escrow accounts ensure that these
items are paid in a timely fashion. They are a guarantee that there
is always enough money to pay these bills when they are due so that
the homeowner avoids the risk of lapsed insurance coverage or
delinquent taxes.
Guarantee that bills are paid on
time. Homeowners do not have to worry about coming up with
several large, lump sum payments, each with different due dates,
throughout the year.
Unexpected increases are taken care
of. It is the responsibility of the mortgage company to allow
for possible increases in tax or insurance premiums.
Mortgage companies typically cover
shortages when tax or insurance payments increase. It is very
common for mortgage companies to pay taxes and insurance premiums
when they are due even though all the money for these bills has not
yet been collected from the homeowner.
Mortgages have lower rates and down
payments because of escrows. Escrows protect the interest of
investors of home mortgage loans by making them more attractive and
secure as investments.
Local governments save money.
Escrow accounts also benefit local governments by providing a more
efficient, less expensive means of tax collection.
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