Ultimate Guide to Property Taxes and Homeowners Insurance Escrow

When purchasing a home, many buyers focus solely on the principal and interest payments. However, property taxes and homeowners insurance are major, ongoing expenses that significantly increase your total monthly housing cost.

Property taxes are levied by local municipalities to fund public services like schools, roads, and emergency response. They are calculated based on your home's assessed value and local tax rates. Homeowners insurance protects your property against hazards like fire, theft, and storm damage, and is required by all mortgage lenders.

To manage these bills, lenders typically establish an escrow account. They divide your annual property tax and insurance bills by 12, add that amount to your monthly mortgage payment, and hold the funds in escrow. When the tax and insurance bills are due, the lender pays them directly from your escrow balance.

Escrow requirements prevent homeowners from being hit with massive, unexpected annual bills. However, tax assessments and insurance premiums can fluctuate, leading to escrow shortages or surpluses. Our mortgage calculator includes intuitive sliders to help you budget for taxes and insurance accurately.