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There are many other expenses involved with taking ownership than simply paying back your mortgage loan when you purchase a home. In addition to having to pay for routine maintenance of your home, you will also need to pay for homeowner’s insurance and property taxes. An escrow account option provided by your mortgage lender will make the tasks of making these payments simpler. You should understand more about an escrow account and how it works before agreeing to escrow terms.

Basically, an escrow account is an account that is handled by a one party in order to pay a third party. You pay an additional amount of money each month when you make your mortgage payment, when you have an escrow account through your mortgage lender. These extra funds are used to pay for your homeowner’s insurance as well as your property taxes, with your lender making the payments for you on your behalf.

Since the amount of your homeowner’s insurance and taxes are estimated, your lender will re-examine your escrow account every year or perhaps every six months. If your escrow account falls short of having enough money to cover your expenses, you may be given the option to pay the shortage upfront or your monthly payment may be increased in order to cover the expenses. On the other hand, you may receive a check for the additional amount, if you have additional funds in your account.

Though you can end up paying a bit more than required upfront, having an escrow account can be quite advantageous to a homeowner. For example, you do not have to worry about making certain your insurance and taxes are paid by a certain deadline. Not only does this give you one less bill to worry about, you also don’t have to worry about getting hit by a large bill once every six months or so. The expenses are far more manageable since they are spread out over several months and are included in your mortgage payment.

You might wonder why lenders would bother with setting up these accounts since initially it may seem as if providing an escrow account service would be a major inconvenience for them. The truth is that having an escrow account set up along with the loan is advantageous to the lender as well.

Lenders have a vested interest in the property that you have purchased is something you should not forget. After all, if you default on the loan, the lender will need to try to resell the property in order to recoup the money it has lost. In the same fashion, if your home is damaged or if it is taken over by the county, city or state because you failed to pay your taxes, the lender will experience a loss. The lender is essentially protecting its investment by including your tax and homeowner’s insurance payments in the mortgage loan payment and by paying these expenses. For these reasons, you likely will not have an option regarding setting up an escrow account, as your lender will require it in order to make certain these expenses are getting paid.