Understanding Escrow

The definition of escrow and how it relates to the home buying process can be confusing. Individuals in the market for a new home should be sure they understand this concept, because it will affect the amount of their monthly mortgage payment.

Your Bankers Trust loan officer will be happy to explain how escrow works and why lenders require it as part of the finance process for a home mortgage loan. It is not as difficult as it may seem.

The term “escrow” refers to monies that will be held by Bankers Trust in a special account designed to provide assurance that the taxes and insurance costs on your new home are paid even if you default on your mortgage loan.

Allowing the insurance on a property to lapse into default can seriously lower a home’s value, especially if an accident with damages occurs. Reinsuring a property that has been allowed to be uninsured for a period of time can be a difficult process. Thus, Banker’s Trust and all lenders need a guarantee that the insurance will continue even if the home owner misses a monthly payment or payments.

Missing a tax bill can result in problems such as late fees and actions being filed against the property. To protect against this, an escrow account is maintained with a “cushion” or “excess” in place to pay the taxes as soon as they are due even if the homeowner is unable or unwilling to.

Your Bankers Trust loan officer will discuss with you how the funds required for escrow will fit into your home owner budget, how the escrow account will be administered, and the way your mortgage loan is financed.