An escrow account is held by your mortgage servicer to pay your property taxes and homeowners insurance. Part of each monthly payment goes into it, and the servicer pays the bills when due. At closing you fund a starting balance, plus a cushion of up to two months. Once a year the servicer reviews the account, which can raise or lower your payment.
How it works
If your yearly property tax is $6,000 and insurance $1,800, about $650 a month goes to escrow. Your total payment is principal and interest plus that amount, plus any mortgage insurance.
At closing
You’ll pay an initial escrow deposit so there’s enough when the next bills come due, plus a cushion of up to two months of escrow payments, as federal rules allow. These appear in Section G of your Closing Disclosure and in your cash to close.
The annual escrow analysis
- Shortage: taxes or insurance rose, so the account came up short. You can usually pay it in one lump sum or spread it over 12 months, and your payment rises going forward.
- Surplus: if the account has $50 or more extra, the servicer must refund it.
See escrow shortages, explained.
Try it: Property tax estimatorEstimate taxes on your purchase price so your first escrow payment isn’t based on the seller’s lower bill.Is escrow required?
Usually for FHA, VA and USDA loans, and for conventional loans with less than 20% down. With more equity, some lenders let you waive escrow and pay taxes and insurance yourself, sometimes for a small fee or slightly higher rate. Escrow is convenient and prevents missed tax bills, which can lead to liens.
Keep your payment predictable
Shop your homeowners insurance each year and appeal an inflated assessment; see appealing your property tax. Both lower your escrow payment. See your full payment with the mortgage payment calculator.
Common questions
Why did my mortgage payment go up?
Usually because property taxes or insurance rose, increasing your escrow payment after the annual analysis.
Can I get rid of escrow?
Some lenders allow waiving escrow with enough equity, often 20% or more, sometimes for a fee; FHA and VA usually require it.
What is an escrow cushion?
Extra money of up to two months of escrow payments that the servicer may hold to cover increases.
Updated October 2026. Educational content. OfferBacked is not currently a lender and doesn’t issue pre-approvals or loans.