What does my mortgage escrow account pay?

Think of escrow as a bill paying account

Part of your monthly payment is set aside until a covered bill comes due. Those dollars do not reduce your mortgage balance. The servicer uses them for the expenses included in the escrow arrangement.

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Know what is included

Check your analysis and loan documents. Do not assume association dues, every insurance policy or every local assessment is paid from escrow. A bill can arrive at your home even when the servicer is expected to pay it. Confirm responsibility before paying twice or ignoring a bill.

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Use a simple annual illustration

If covered taxes are $6,000 and covered insurance is $1,800, the base annual estimate is $7,800, or $650 a month. This simplified figure excludes a cushion, shortage, surplus or timing adjustment. Your actual collection can therefore differ from the total bills divided by 12.

Read the annual analysis

The analysis compares money collected, bills paid and expected future activity. Review the tax and insurance amounts and the timing of payments. An incorrect assumption can affect the required monthly collection. Ask the servicer to explain a difference you cannot trace.

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Keep a separate household reserve

Escrow is assigned to particular bills. It is not the same as cash you can freely use for other needs. Keep your household budget and emergency reserve separate from the escrow balance you see on the statement.