If you’ve ever agreed to an informal bet with a friend, and asked a third party to hold the tangibles until the bet has run its course, you’ve already completed something similar to opening an escrow account. When you decide to take out a mortgage to purchase a home, you may consider opening an escrow account, which serves as a “middle man” for your property tax, fire and hazard insurance premiums, mortgage insurance premiums and other item payments. The office of Ann Irons, CPA explains the basics to understanding an escrow account in the following article.
What Is An Escrow Account?
Escrow accounts provide a guarantee that your property taxes, associated premiums, and associated insurances are paid on time. The account also guarantees that there is always enough money to pay for these obligations, avoiding the risk of lapsed insurance coverage, or errant taxes. Also, an escrow account allows for the homeowner to live in comfort, not having to worry about producing several lump sum payments with inconsistent due dates throughout the year. Your obligatory payments are punctual and recurrent.
The Mortgage Company’s Responsibility
Although unexpected increases in property taxes and premiums do occur, your mortgage company takes responsibility for paying these. In most cases, your escrow account provides assurance that any shortages in payment are covered. Sometimes the mortgage company pays the shortage up front prior to receiving the payment from the homeowner, which is a vital part in attaining an escrow account—to guarantee that your obligatory expenditures in correlation with your loan are paid punctually.
Your Responsibility As A Homeowner
As a new homeowner, you benefit from opening an escrow account. Spreading the payments over a period of time instead of paying in lump sums over the course of inconsistent dates decreases stress and allows for financial planning. However, the escrow account is not available as a crutch, and you are responsible for paying on time and with the amount agreed. If you don’t keep your agreement, for example, your local municipality may file a lien on your home, meaning the right to keep possession of your home until debt owed is paid.
About Ann Irons, CPA
To learn more about our tax, accounting, and bookkeeping services, or to schedule an appointment with Ann Irons, CPA, LLC, contact our Bellingham, MA office at 508-966-0700. We welcome individuals and businesses and are located near Milford, Medway, Woonsocket, and Franklin.
Ann spent over 25 years in the financial service industry, gaining knowledge and experience that allows her to provide an array of tax, bookkeeping, and accounting services for her clients. Relying on a stringent code of ethics and a dedication to maintaining the highest industry standards, Ann works hard to ensure her clients receive the quality service they’ve come to expect. A member of AICPA and MSCPA, Ann has also had an article featured in the renowned publication, Banker and Tradesman. 
