What is an escrow account for taxes and insurance?

An escrow account — sometimes called an impound account — is a separate account maintained by your mortgage lender into which a portion of each monthly payment is deposited to cover future property tax and homeowner's insurance bills. Rather than paying these large expenses in a lump sum once or twice a year, the lender collects a prorated amount monthly and pays the bills on your behalf when they come due. This protects the lender's investment by ensuring taxes and insurance are always current.

For homeowners in Delaware, Ulster, Greene, and Otsego counties, it's worth understanding how local tax schedules interact with escrow. New York has both school district taxes and town/county taxes, which are billed at different times of year. Lenders will calculate your escrow contribution based on the total annual tax burden spread across twelve months, but the actual bills arrive at irregular intervals depending on your municipality. Buyers should ask their lender for a clear breakdown of how escrow payments are calculated, and be prepared for an escrow analysis — and possible payment adjustment — each year as tax assessments change.