What does an escrow or impound account add to my payment?

An escrow (or impound) account is set up by your lender to collect and pay your property taxes and homeowners insurance for you. Instead of paying those large bills once or twice a year, you pay roughly one-twelfth of the annual total each month as part of your mortgage payment, and the servicer pays the bills when they're due. So your monthly payment includes principal, interest, taxes, and insurance — often summarized as PITI. Lenders usually require escrow when your down payment is under 20%, and they collect a small cushion at closing to keep the account funded. Each year they run an analysis; if taxes or insurance premiums rise, your monthly payment goes up, and you may owe a shortage or get a refund. Escrow adds convenience and predictability, but it means your payment can change yearly even on a fixed-rate loan. Budget for those increases.