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Demystifying real estate: What is escrow?

The JAG Team

The term escrow is used throughout the process

Donahue said there are two key reasons you may need an escrow account in real estate.

Your mortgage escrow account covers insurance and tax payments

“After you purchase your home, your escrow account will be established to pay your property taxes and your homeowners’ insurance,” Donahue said. She also explained that when you pay your monthly mortgage, a portion of your payment will be paid into escrow to cover homeowners’ insurance and property taxes. That portion would be one-twelfth of your annual premium. “Taxes and insurance are due every year. When that year comes up, that full premium is due for homeowners’ insurance and property taxes.”

Prices can change each year, which affects your payments

Escrow, used to hold property taxes and homeowners’ insurance, is paid into with each of your monthly mortgage payments.

Some buyers can opt out of escrow

Escrow shows your lender the property has security

Escrow provides peace of mind