A mortgage escrow account, sometimes called an impound account, is an account the lender maintains to collect and pay a borrower's property taxes and homeowners insurance. The borrower pays a portion each month as part of the mortgage payment.
The lender holds these funds and pays the tax and insurance bills when they come due, ensuring these obligations are met so the collateral stays protected. This is the taxes and insurance portion of a PITI payment. Because bills change over time, lenders periodically analyze the account and may adjust the monthly amount.
Escrow accounts are required on many loans, especially those with smaller down payments, though some borrowers can waive them. This mortgage escrow account is distinct from the transaction escrow that holds funds during a home purchase.