One good way to understand escrow is that it is two factions having a third, unbiased person manage goods, monies or services until the two people or groups can decide on the specifics of some type of agreement. The most common example of when escrow is used is through a mortgage escrow account. In a mortgage escrow account, you as the home owner make payments into a different account that will be used to pay your property tax and home insurance payments. This permits you to make smaller payments monthly, rather than coming up with a large lump sum annually. Typically, you make these payments to an escrow agent who then pays the insurance and tax payments when they are due. Your lender then has the guarantee that your tax payments and home insurance premiums are paid, therefore making them more relaxed with their investments in your mortgage.



If you have a mortgage, chances are you also have one of these mortgage escrow accounts. When your mortgage is in escrow, you will be obligated to make the smaller payments each month, typically as a condition of your mortgage. This is, once again, to insure the lender that your home is secure and therefore, that their investment is safe. It also helps many home buyers who simply couldn’t afford to come up with the big yearly premium of their home owner’s insurance, or the yearly property tax bill. The reason that your lender likes an escrow account is that it helps them to relax and know that their investment is safe. It puts off a possible tax lien, which could greatly decrease the value of the sale of your home should you fail to make the payments. It also allows the lender to know that you have made your insurance payments and that your home is safe in the event of damage. Another good example is that if your home is ruined because of a fire, the bank would completely lose their investment without home insurance on your property. With the escrow account, the bank knows that your premiums will be paid.





Usually, escrow is ideal for both the lender and the borrower. It makes it easier for you to make payments on your property taxes and insurance, and it helps make sure your lender is protected in the situation where you fail to pay or your home is destroyed. However, some people basically do not want to bother with escrow. Maybe they would prefer to control payments themselves, or perhaps they are not too keen on the idea of their mortgage escrow accounts not building interest. And, sometimes, they are nervous about the capability or character of an escrow agent.



If you determine you do not want a mortgage escrow account, the first step to take is to find out if you can get the escrow requirements waived. Many lenders will waive mortgage escrow requirements if you, the home buyer, make a down payment of 20 percent or more on the home you’re buying. Keep in mind that getting your mortgage escrow requirements waived isn’t always a definite possibility, and even if you do get them waived, your lender may slightly raise your interest rate and even charge a fee for the escrow waive.