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A neutral holding account for funds during a transaction or for ongoing tax and insurance payments.
Escrow refers to money or documents held by a neutral third party. During a home purchase it holds the earnest deposit until closing; with a mortgage, an escrow account collects part of each payment to pay property taxes and insurance when due. It ensures these large bills are covered without a lump-sum surprise.
Your monthly mortgage payment may include escrow for property taxes and homeowners insurance.
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