Mortgage Glossary
Escrow
A neutral third-party account used to hold funds during a home purchase — or an ongoing account your lender manages for taxes and insurance.
What It Means
Escrow shows up in two different ways during homeownership:
1. During the buying process: When you make an offer, your earnest money deposit goes into an escrow account held by a neutral third party (like a title company). This protects both buyer and seller while the transaction closes.
2. Ongoing escrow (impound account): Once you have a mortgage, your lender often collects a portion of your property taxes and homeowner's insurance each month — on top of principal and interest — and holds it in an escrow account. They pay those bills on your behalf when they come due.
Escrow protects both parties and ensures critical bills (like taxes) never go unpaid.
Real-World Example
"If your property taxes are $3,600/year and homeowner's insurance is $1,200/year, your lender might add $400/month to your mortgage payment and hold it in escrow to pay those bills."
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Definitions are for educational purposes only and do not constitute financial or legal advice.