Escrow Account is a separate account that lender or loan servicer set up and hold to collect and manage funds for property expenses. It is also known as an impound account. The purpose of an escrow account is to ensure that the borrower pays these expenses on time and in full.
When you have a mortgage loan, the mortgage lender may require you to establish an escrow account as part of the loan agreement. A portion of your monthly mortgage payment is deposited into the escrow account. The funds cover property taxes, homeowners insurance, mortgage insurance, and other expenses mentioned in the loan agreement.
By collecting funds in advance, the lender or loan servicer can ensure that the borrower pays these expenses. It helps avoid any potential delinquencies or liens on the property. It provides a convenient way to manage and distribute these expenses throughout the year. Therefore, the borrower doesn’t have to handle them separately.
The exact requirements and regulations regarding escrow accounts can vary. It depends on the jurisdiction and the specific loan terms. It’s important to review your loan agreement and consult with your lender or loan servicer for accurate information about the escrow account management.
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