A Mortgage Escrow Account is established to pay on-going expenses while there is a loan on the house. These expenses include property taxes, home insurance, mortgage insurance, and other escrow items. Generally, the Escrow Account is partially funded at closing and the home buyer makes on-going contributions through their monthly mortgage payment.Banks prefer to escrow property tax and hazard insurance premium payments to protect their investment. In the order of recapturing their investments through foreclosure,
banks can only lose their investment to fire and tax liens.
Conforming lenders, lenders for people with excellent credit, will generally require that you escrow for taxes and insurance if your LTV, Loan to Value, is over 80%. If you are under 80% LTV normally conforming lenders will give you an opportunity to request an escrow waiver, not require you to escrow, however they will also usually charge you .25% of your loan amount to do so.
An escrow account allows you to make one payment every month rather than several separate payments. There is less to keep track of, and fewer bills to worry about paying late.
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