For convenience and optimal pricing, most clients prefer to pay their taxes and insurance along with their monthly mortgage payment through an escrow account established by the mortgage lender. Most lenders offer the best pricing to customers who choose to escrow because loans with an escrow account are usually more valuable to lenders than loans without an escrow account. Escrow accounts can easily be set up by the lender upon loan funding and clients do nothing to establish an escrow account. Information and accounting of escrow monies is reported on the monthly mortgage statement. For clarity, borrowers are not required to escrow with most loan products unless the LTV (Loan-To Value) ratio is greater than 80%.

For additional industry insight, you may be interested to know this practice exists primarily for two reasons. First, to account for the increased risk of a possible tax lien occurring. A tax lien is the only lien that can supersede your lender's first lien position. When lenders are responsible for disbursing annual tax payments from an escrow account, the risk of a tax lien is mitigated. Second, lenders prefer to collect taxes and insurance due to the value added benefit of having escrow money on hand until such time the tax and/or insurance payments become due. In short, mortgage loans with escrow accounts are more valuable to lenders compared to mortgage loans without escrow accounts. As a result, better pricing is typically available to clients who choose to escrow.