All You Need To Know About Escrow Accounts

If you are not yet a homeowner, you may not be familiar with an escrow account. Escrow accounts are bank accounts managed by your mortgage lender that are used to finance your insurance and property taxes. When you pay your monthly mortgage payment, you will also make a payment to your escrow account. It is then your mortgage lender’s responsibility to take care of the property tax and insurance payments when the due dates rolls around.

Why do escrow accounts exist? Your lender wants to make sure that their loan is secured. They do not want to take the risk of having you get behind on your insurance, or tax payments. Therefore, they take on the task of making those payments.

Having an escrow account does not only benefit the lender; it also benefits the homeowner. It saves you from having to make two hefty payments throughout the year, and therefore functions as a savings mechanism. Additionally, it saves you the time and worry of making sure two different payments are paid on time. Lastly, your lender will be more likely to approve you for a home loan if you agree to open an escrow account.

However, there are also a few potential downfalls to opening up an escrow account. In some instances, you may have to pay upfront. You may miss out on financial return if you are unable to invest that money instead. Secondly, your account will house two months’ worth of payments that you will be unable to touch. Your lender uses this money as a cushion for if you ever fall short of your payments.

If you have additional questions regarding escrow accounts, or real estate, do not hesitate to contact me, Stella Tsakonas. I am one of California’s most decorated real estate agents, and has over 20 years of quality real estate industry experience.