Understanding Escrow

Understanding Escrow

What is escrow and do I have it?

Escrow is an account balance tied to your mortgage loan to pay your escrowed entities whenever they become due. Escrowed entities can include property taxes, insurance, and/or private mortgage insurance (PMI) when applicable. You can tell if you have escrow by reading your disclosure, reviewing your loan payments, or contacting the credit union.
 

Understanding Escrow

As a homeowner you are responsible for paying the property taxes associated with your home, along with the insurance that your home requires.

Escrow is a convenient way to pay these entities, as your lender collects for payment on a monthly basis so that they can pay them when they become due within the year. Having an escrow account can give homeowner’s peace of mind by allowing their lender to take on the responsibility of making payments on time and budgeting for projected payments for the following year.

Escrow is collected on top of your principal and interest payment. Thus, your loan payment is broken down by principal and interest and your escrow payment. Each monthly payment will have that portion of your escrow payment deposited into an escrow account.

Your escrow account will hold your funds until either your property tax payment, insurance payment, or private mortgage insurance payment is due. When these payments are due, your lender will withdraw from the account and send payment within a timely manner so that you don’t have to.
 

How is my escrow payment calculated?

Escrow payments are calculated by adding the annual amount of escrowed entity’s payments and dividing this amount by 12 (months). View the example below: