Process · 4 min read
What is an escrow or impound account on a mortgage?
July 18, 2026 · Written by Bill Egan, NMLS 7342
Short answer
It is a bucket the loan servicer uses to pay your property taxes and homeowners insurance. You pay a piece of those bills every month with the mortgage. Not every state requires it, but many loans do, especially with less than 20 percent down. The deposit at closing covers the months before the next tax bill is due.
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Why this comes up
The first payment is higher than the principal-and-interest number you were shown, or you do not know who actually pays the tax bill. It feels like a hidden second loan.
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Where this goes wrong
You compared a principal-and-interest quote with another lender’s full payment and chose the “cheaper” loan. At closing the escrow deposit is thousands. Or after closing the payment jumps at the first analysis and you think the rate changed. It did not — the tax bill did.
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What we do about it
We explain the escrow bucket before you sign: a piece of taxes and insurance every month, plus a deposit at closing to cover the months before the next bill. That deposit is on the Closing Disclosure. It is not a junk fee. We will tell you if the loan requires escrow.
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How to get ready
Look at the Closing Disclosure for the cushion. If you waive escrow, you must pay the tax office and the insurance company yourself. A missed tax bill is how people end up in a tax sale. Do not compare a principal-and-interest quote with a full PITI payment from another lender.