Your lender will create an escrow account for your real estate taxes and homeowners’ insurance. A portion of each mortgage payment will be put into this account to cover the annual charge for real estate taxes and insurance.
An escrow account is good because it is a way for you to budget over twelve months for annual bills. However, this does increase your monthly mortgage payment.
Caution on lenders’ escrow accounts. As a homeowner you will undoubtedly get a notice from your lender that you need to add a certain amount to the escrow accounts for real estate taxes or homeowners’ insurance. This is normal. As real estate taxes and the cost of insurance rise, your escrow accounts will need to contain sufficient funds to pay these larger bills.