Mortgage glossary
Escrow account
Definition: An escrow account is a separate account managed by the loan servicer that collects part of each mortgage payment to pay the borrower's property taxes and homeowners insurance when they come due.
At closing, the lender funds the account with an initial deposit. Each monthly payment then adds a portion of the projected annual tax and insurance bills. The servicer reviews the account yearly and adjusts the payment if taxes or premiums changed, which can create a shortage or a refund.
Escrow matters in Texas because property taxes are relatively high and there is no state income tax to offset them. When a home's taxable value rises, the escrow portion of the payment usually follows. Filing for your homestead exemption promptly helps keep that portion in check.
Related terms
Reviewed by Kyle Richardson, NMLS #863464. General information, not advice for your specific situation. All glossary terms
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