How escrow works
Your lender estimates your annual property taxes and insurance, divides the total by 12, and adds that to your monthly mortgage payment. The money sits in the escrow account until the bills come due, then the servicer pays them. It is the “T” and “I” in a PITI payment (principal, interest, taxes, insurance).
Once a year the lender runs an escrow analysis. If taxes or insurance went up, your monthly payment rises to cover it (plus any shortfall); if they fell, it can drop. That is why a fixed-rate mortgage payment can still change over time.
Why it matters
Escrow is a real part of your monthly housing cost, not an optional add-on for most buyers — so it belongs in any honest affordability estimate.
Note: “escrow” also describes the neutral account that holds funds during a home purchase. This page covers the ongoing mortgage escrow account most homeowners deal with month to month.
See escrow in your payment
Estimate your full PITI mortgage payment with taxes and insurance.