Glossary

Escrow account

A lender-held account that collects a share of your annual property tax and insurance bills with each mortgage payment and pays them when due.

Also called: impound account, mortgage escrow, tax and insurance escrow

An escrow account, sometimes called an impound account, is a holding account run by your mortgage servicer. Each month it collects one-twelfth of your estimated annual property taxes and homeowners premium on top of principal and interest, then pays those bills as they come due. Lenders often require escrow, especially on loans with a small down payment, and some borrowers choose it for convenience.

Once a year the servicer runs an escrow analysis. If taxes or your premium rose, the account runs short and your payment goes up. Say your premium jumps from $1,800 to $2,700: the insurance part of the payment moves from $150 to $225 a month, and the servicer may also spread a $900 shortage over 12 months, adding $75. Under federal rules (RESPA), the servicer may hold a cushion of no more than two months of escrow payments.

Escrow does not mean the servicer manages your insurance. You still choose the insurer. If you switch companies, send the servicer the new declarations page right away, or it may pay the old bill or conclude you have no coverage and buy force-placed insurance. See how escrow pays your homeowners insurance, escrow shortages after a premium increase and the escrow shortage calculator.

Last reviewed October 10, 2026

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Related terms

Mortgagee The lender that holds the mortgage on the home, listed on the declarations page so it gets cancellation notices and shares in payments for dwelling damage. Premium The price of a policy for its term, set by rebuilding cost, location, claims history, roof, deductible and other rating factors. Force-placed insurance Coverage a mortgage servicer buys on your home and bills to you when it believes your own policy has lapsed or falls short of loan requirements. Renewal The insurer's continuation of your policy for another term, usually with a new premium and sometimes with changed deductibles, limits or conditions. Mortgagee clause The policy condition that gives the lender its own right to be paid for dwelling losses and protects that right even when the owner's claim is denied.

Related guides

How to cancel homeowners insurance and get a refund Cancel in writing with a date, tell your lender, and expect the unused premium back pro rata unless a short-rate rule applies. Steps, deadlines, late refunds. Cancellation for nonpayment and reinstatement The standard ISO form allows cancellation for unpaid premium on 10 days' notice. Notice rules, payment timing and reinstatement decide whether you get a gap. How escrow pays your homeowners insurance How a mortgage escrow account collects and pays your homeowners premium: the monthly math, the one-sixth cushion, the annual analysis, and dropping escrow. Escrow shortages after a premium increase Why a higher home insurance bill creates an escrow shortage, the federal rules on how fast your servicer can collect it, a worked example, and what to do. FHA, VA and USDA homeowners insurance requirements What FHA, VA and USDA loan rules say about homeowners and flood insurance: who picks the insurer, how much coverage, escrow, and what the lender may not demand. Home insurance for first-time buyers: what changes when you own How homeowners insurance works for a first-time buyer: what it adds to your monthly payment, what the lender skips and six decisions to make before closing.

Related insurers

Assurant The leading U.S. writer of lender-placed (force-placed) home insurance, which also sells manufactured home, condo and homeowners policies in select states.

Related tools

Escrow shortage calculator See how a higher homeowners premium raises your mortgage payment twice, once for the new premium and once to repay the escrow shortage.