Escrow Account

• In a property loan, the escrow account is a separate account set up to hold funds to pay specific property expenses, such as property tax and homeowner's insurance. Instead of the property owner paying these bills personally, a portion of the regular mortgage payment goes into the escrow account and the lender pays these bills.
  
  

Advantages

• Some borrowers prefer escrow accounts, as they are a way for the property owner to budget for the expenses of homeowner's insurance and property tax. Instead of paying two large payments once or twice a year, the borrower pays a little each month. Since the payment is typically included in the regular mortgage payment, the borrower doesn't have to worry about collecting or paying the property tax or homeowner's insurance. He doesn't have to worry about lapsing homeowner's insurance or late fees on property tax, when using an escrow account for these bills.
  
  

Disadvantages

• Some borrowers dislike escrow accounts, as they don't like the idea of the lender holding these funds during the year. Instead, they prefer lower mortgage payments and the ability to use the additional funds throughout the year. The borrower working on commission, who makes large sums of money throughout the year, yet not a consistent monthly income, might want to waive an escrow account to keep monthly expenses down and save the funds for the insurance and taxes when paid a commission.
  
  

Paying at End of Year

• If your intention is to waive the escrow account and pay the property tax and insurance at the end of the year, first consider the actual due dates of each expense. While it is possible to arrange a payment schedule with your insurance company, your property tax may be due in the summer, spring or another time.
  
  

Warning

• Before asking your lender to waive the escrow account, consider your personal budgeting skills and discipline. While having a little extra money each month, by way of a lower house payment, may seem like a great idea, you may find coming up with the funds to pay a large property tax bill or homeowner's insurance a difficult task. In the end, it may cost you additional money in penalties and fees.