What's an escrow account?

Escrow is a contractual arrangement in which a third party receives and disburses money or property on your behalf once a particular condition has been met, like the fulfillment of a purchase agreement, for example.

An escrow account makes managing your property taxes and insurance simple. You can pay one monthly amount that covers your mortgage payment, which goes to paying off the principal and interest of your home loan, as well as your property taxes and homeowners insurance, which go into an escrow account. When the insurance bills and taxes are due, whoever holds the escrow account (usually your lender) will pay them for you out of the funds in the escrow account.