Escrow
By Jude Wallis
In a mortgage, escrow is an impound account that collects a share of projected property tax and homeowners insurance with each payment, then pays those bills when they come due.
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The base deposit is the two annual bills divided by twelve. That money sits in a custodial account. It does not reduce the loan balance. Principal and interest still travel to the lender.
A closing escrow is a different use of the same word: an agent holding purchase funds and documents until a sale completes. This term is the ongoing impound after closing.
How a mortgage escrow works is the explainer. The escrow calculator applies the split. How PITI works is the full housing payment that contains this deposit.