What is an Escrow?

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition is called an escrow. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner's insurance when they come due. The lender pays them with your money instead of you paying them yourself.

The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due is called escrow disbursements.

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