How does an Escrow Account Work?

Real estate taxes and insurance premiums must be paid regularly.  Typically, payments are due once, twice or quarterly each year.   Failure to pay these bills on time may cost money in tax penalties or result in cancellation of insurance coverage.  With an escrow account, the mortgage company pays the taxes and insurance bills when they are due. 



Here is a simplified example of how escrow payments are calculated:

  • Annual real estate taxes: $1,200.00 ÷ 12 months = $100.00 per month
  • Annual property insurance: $600.00 ÷ 12 months = $50.00 per month
  • Total monthly taxes and insurance: $150.00 

In this example, $150.00 would be added to the total monthly mortgage payment and deposited to the escrow account.


Items that may be escrowed include:

  • County Taxes 
  • City Taxes 
  • School Taxes 
  • Township Taxes 
  • Borough/Village Taxes 
  • Ground Rent 
  • Hazard Insurance 
  • Hazard Insurance (HO6) 
  • Flood Insurance 
  • Windstorm Insurance 
  • Mortgage Insurance (MIP/PMI)