What is escrow?
In addition to the principal and interest portion of your monthly payment, the terms of your loan agreement allow the lender to collect funds from you for the payment of your real estate taxes, insurance bills, and sometimes other items. These additional funds are referred to as the escrow portion of your payment. They are collected throughout the year and paid on your behalf.

The term escrow is also used to describe a trusted third party who holds and disburses funds in connection with a mortgage transaction. Often, you will place down payment money in an escrow account during a purchase transaction. In a refinance transaction, an escrow agent may be employed to disburse the proceeds of a loan, for example to pay off your existing mortgage, pay third parties and services providers, and to cut checks or wire money to you personally if you are pulling cash out of your home.

 

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