What to Know About Mortgage Escrow Accounts
Escrow accounts ensure that you pay your bills for home insurance and property taxes.

When you finance your home with a mortgage, your lender will likely require you to maintain an escrow account. With this setup, a portion of your monthly mortgage payment is set aside to cover your annual property taxes and home insurance premiums.
Lenders want to protect their financial investment when they loan you money; an escrow account acts as a forced savings account to ensure those property expenses are paid on time and in full, says Ed Santiago, a branch manager with Fairway Independent Mortgage in Wayne, Pa.
Lenders hold back one-twelfth of the estimated annual expenses each month to pay your taxes and insurance. Some lenders require an additional cushion of up to two months' worth of expenses to avoid potential escrow shortages. If you end up with an overage because you get a cheaper insurance policy or your property taxes decrease, your lender will send you a refund check.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Because property-tax assessments and insurance rates tend to rise over time, the amount collected for escrow can fluctuate. So while your principal and interest payments remain the same for the life of a fixed-rate mortgage, your total monthly payment may change from year to year.
Homeowners felt the sting of both higher property-tax bills and soaring home insurance premiums in 2024. According to data from Intercontinental Exchange, home insurance premiums rose by an average 14% from the previous year, and 2024 property-tax bills jumped 2.7%.
Escrow rules
Government-backed mortgages — Federal Housing Administration (FHA), Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans — require escrow accounts regardless of the down payment amount.
For conventional loans, most lenders require an escrow account if you put down less than 20% on the home purchase. In some cases, though, you can get an escrow waiver with a loan-to-value ratio of 95% or less, a good credit score, and no recent mortgage payment delinquencies or defaults on past escrow waivers. However, you’ll pay 0.25% of the loan amount for an escrow waiver.
A waiver makes sense only if you have sufficient disposable income to cover larger (but less frequent) tax and insurance payments and the financial discipline to keep up with them independently, Santiago says. Check how often your locality collects property taxes — some collect only once or twice a year, leading to bigger bills, while others collect quarterly.
If you get an escrow waiver, you could put money to pay your insurance and tax bills in a high-yield savings account, earning interest on the funds. (But for this to be worthwhile, your interest earnings would need to be greater than the fee to waive escrow.)
Additionally, if you switch home insurance providers or successfully appeal your home's assessed value for property taxes, you may not face as much hassle and paperwork. But most loan servicers offer online account management, so updating your account isn't as cumbersome as it used to be, Santiago says.
And the flexibility of managing escrow expenses on your own isn't without some risk. Failing to pay your property taxes could result in your county filing a tax lien against your home, potentially leading to foreclosure.
Likewise, if you don't pay your homeowners insurance premiums and let the coverage lapse, you're breaching your agreement to maintain home insurance as a condition of taking out a mortgage. In that event, your loan servicer can require force-placed homeowners insurance, which is usually costlier and less comprehensive, Santiago says.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related Content
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Personal finance journalist, communicator and content strategist who writes and edits for impact.
-
Florida Residents Could Soon Get Property Tax Relief
Property Tax The push for a solution to end high property taxes could lead to significant tax cuts in the Sunshine State next year.
-
Amazon AI on Prime Day: Deal Helper or Upsell Machine?
Amazon’s Rufus chatbot, Alexa voice deals, and Amazon Lens can change how you shop on Prime Day. Here’s how to use them wisely — and avoid being upsold.
-
Dealing With a Bad HOA Board? This Book Could Be Your Battle Plan
'Bad HOA' by Luke Carlson empowers homeowners to push back against unfairness, offering advice on dealing with challenging homeowners associations (HOAs).
-
Home Equity in Retirement: Should You Sell, Borrow or Rent?
Learn how to preserve your property's value, tap equity for income and make smart choices about downsizing, renting or leaving a legacy.
-
I'm 63 With an Aging House That Needs Repairs, but I Might Move to a Retirement Community In a Few Years. Is It Worth Making Those Fixes?
We ask financial experts for advice.
-
Falling Interest Rates: What They Mean for Homeowners, Savers and Investors
As interest rates fall, homeowners may celebrate while savers feel the pinch. Here’s what the change could mean for your money.
-
Refinance Applications Surge as Mortgage Rates Tumble
The window to refinance is reopening as mortgage rates hit their lowest level in nearly a year. Here’s what the market shift means for homeowners.
-
Cash vs. Mortgage: How to Pay for Your Second Home
Should you buy your second home outright or finance it with a loan? Weigh the pros, cons and tax implications before making the leap.
-
Mortgage Rates Dip to Year-Low as Jobs Data Disappoints
With August job growth falling short of expectations, markets drive 30-year mortgage interest rates down, opening refinance and homebuying opportunities.
-
I'm a Real Estate Investing Expert: Optional 721 UPREIT DSTs Can Be the Best of Both Worlds
Before investing in any 721 UPREIT exchange, look for one that offers a straightforward, investor-friendly exit.