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What is Escrow?

A deed, a bond, money, or a piece of property held in trust by a third party to be turned over to the grantee only upon fulfillment of a certain condition. In more simple terms, an escrow is an agreement where an amount of money or some kind of asset is held by a third party on behalf of the other parties involved. When the agreed upon transaction is complete the money and/or asset is delivered.

How does Escrow work in mortgage?

When you close on your home your lender may set up an escrow account to help pay for the ongoing costs of your mortgage that are outside the cost of the loan itself. The most common costs are property taxes and home insurance. These are items that need to be paid yearly, so your lender will generally pay your mortgage insurance premium and then anticipate your property tax amount. Then divide that total amount by 12 and thats is what you will pay on top of your principal and interest payment.