We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Escrow Payment?

By Felicia Dye
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

To understand what an escrow payment is, it is necessary to first understand two terms. Escrow is the first term, which describes a situation where something is kept by a neutral third party. Next, mortgage is money that is loaned to a borrower who uses it to buy real estate. An escrow payment, therefore, is money that a mortgage lender receives from a borrower and places into an account for the payment of taxes and insurance.

When a person borrows money to purchase real estate, it is usually repaid to the lender or current mortgage holder in monthly installments. Such a payment would normally include a portion of the principal, which is the actual amount borrowed, and a portion of the interest on the loan. When there is an escrow payment to make, an additional amount is added and collected monthly.

This additional money is generally used to pay the borrower’s property taxes and homeowner’s insurance. Property taxes are charges collected by the locality where the real estate is located; it is based on the property’s value. Homeowner’s insurance is a service that offers coverage in the event certain damages occur to the property.

These items are not usually due on a monthly basis. This means the mortgage lender must guard the money until the time of payment. To do this, the mortgage lender places the money into an escrow account, which is usually in the possession of a third party. Here, it can earn interest, which will increase the amount the borrower has available to make payments.

In some instances, an escrow payment system is an option. Even if a person did not choose it in the beginning, she may be able to open an escrow account during the span of her mortgage repayment. In other cases, it is a requirement and the borrower will be bound to the arrangement until the mortgage is fully repaid. One instance in which an escrow payment system is likely to be mandatory is when a borrower makes a down payment of less than 20 percent.

Fannie Mae says there are several benefits to the escrow payment system. The ability to manage a household budget in a less stressful way is one of them. Since the payments are made in small portions, there is no pressure to pay a single lump sum on the due date. Another benefit, says Fannie Mae, is that homeowners do not have to keep track of these bills or their due dates. They can rest assured that whatever the cost, it will be paid in a timely manner.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.