What Are Escrow Bank Accounts?

Escrow bank accounts, also called impound accounts, are bank accounts established by mortgage lenders to pay certain expenses for others such as property taxes and homeowner insurance. Escrow bank accounts are often temporary accounts, and vary in terms and conditions depending on the individual and the mortgage lender. Some escrow accounts are set up to make semi-annual payments while others allow individuals to make annual payments.

In some circumstances, escrow accounts are required by law. These accounts may be automatically imposed on individuals to help investors safeguard their financial investments in properties, such as when homeowners and property owners fail to pay taxes on their lands. In these circumstances, the state or local government often has the authority to place liens on homes or parcels of land to reduce risk to the lender. Before entering into payment contracts with individuals, investors like to make sure that those individuals have sufficient funds to pay bills when they are due. Lenders determine the sufficiency of funds by requesting individuals to pay monthly installments, which are added to monthly mortgage payments. In addition to varying in payment schedule, escrow accounts have different protocols for termination. Some allow homeowners to terminate their accounts after accruing sufficient amounts of home equity, while others have specific conditions that must be met.