What Is an Escrow Account and How Does It Work?
By Colson · Reviewed by Abodemic Editorial Standards · Updated June 1, 2026
An escrow (or impound) account lets your lender collect property taxes and homeowners insurance with your monthly payment and pay those bills for you. Because taxes and insurance change, your escrow portion — and total payment — can rise or fall after the annual escrow analysis.
What is an escrow account?
An escrow (or impound) account lets your lender collect your property taxes and homeowners insurance along with your monthly mortgage payment, then pay those bills for you when they come due. It spreads big annual bills across 12 months. Your monthly payment includes this escrow portion.
Why did my mortgage payment go up?
If your property tax or insurance premium rises, the escrow portion of your payment rises too. Each year the lender runs an "escrow analysis"; if the account ran short, your payment increases to cover the higher bills and replenish any shortage.
Can you waive escrow?
Some lenders let you pay taxes and insurance yourself if your loan-to-value is low enough, sometimes for a small fee or slightly higher rate. Most buyers keep escrow for the convenience and to avoid large lump-sum bills.