An escrow account is a special account that holds money for expenses such as mortgage insurance premiums and property taxes. It is typically set up by a mortgage lender or managing entity, and is used to ensure that these important payments are made on time. While there are many benefits to having an escrow account, there are also some drawbacks that should be considered. One of the main advantages of an escrow account is that it helps homeowners save money each month to cover insurance premiums and property taxes.
This can be especially helpful for those who may not have the funds available to pay these expenses in one lump sum. Additionally, lenders may offer incentives such as lower mortgage interest rates for those who open an escrow account. However, there are some downsides to having an escrow account as well. For example, the account is set for your latest property tax rate or home insurance rate.
If these values change, you may end up with a surplus or deficit in your account. Additionally, you lose a bit of control over your finances since the money will be managed by your lender. Finally, some homebuyers may prefer to manage taxes and insurance payments on their own. In this case, an escrow account may not be the best option.
Overall, an escrow account can be a great way to ensure that important payments are made on time and help you save money each month. However, it is important to consider both the pros and cons before deciding if it is right for you.