Home Buying Coarse
➜ Don’t skip the video above. This video explains how escrow and impounds actually work. Use the notes below as a reference.
Bonus Module
Escrow & Impounds Explained
Understanding where your monthly payment really goes.
Overview
Your monthly mortgage payment often includes more than just principal and interest. Most loans also collect money for property taxes and homeowner’s insurance through an escrow account.
How It Works
- Each month, 1/12 of your annual property taxes and insurance is added to your payment (the yearly total split into 12 monthly amounts).
- The lender holds these funds in a dedicated escrow account.
- When tax and insurance bills are due, the lender pays them on your behalf.
- Once a year, your escrow account is reviewed through an escrow analysis. If taxes or insurance premiums change, your monthly payment is adjusted.
Tip
Don’t be surprised if your mortgage payment changes slightly from year to year. This is normal and is directly tied to changes in your property taxes and insurance premiums.
Important Note: Escrow requirements, tax schedules, and insurance rules vary by loan type, lender, and state. This lesson provides general guidance only. Always rely on your lender’s escrow analysis and loan documents for exact figures.
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