If you are in the process of refinancing your mortgage or taking out a second mortgage you many be required to make payments to an escrow account. What the heck is escrow anyway? If you’ve made escrow payments before, you might think that escrow payments are a method for letting someone else take your money and spend it on your behalf. Just when you’ve gotten used to this idea, the payment you make to the escrow account goes up. Where does this money go anyhow, and how do they determine the amount?
An escrow account is set up for you to deposit of money into, used by one party for payment to another for a particular event or condition. Most of the time escrow accounts serve to ensure property taxes and insurance premiums are paid on time. In some cases the escrow amount will be rolled into your monthly mortgage payment. The escrow company will hold this money for you in a separate account and use it to pay the mortgage, taxes and insurance on your behalf. If you utilize more creative means of financing to secure your mortgage you may be required to make your payments via escrow. The exception would be if you have excellent credit or satisfy the lender requirements you may be able to handle property tax and insurance payments on your own.