You just bought your first home and are getting ready to make your monthly mortgage payment. In addition to principal and interest, your payment may also include an escrow payment.
Escrow payments are common and many lenders require that an escrow — or reserve — account be established under the terms of your mortgage. Your monthly escrow payment is designed to cover a portion of your estimated annual costs for property taxes and insurance premiums such as homeowners insurance. Your lender will deposit this amount into your escrow account and will pay for both items on your behalf when they are due.
Regularly scheduled escrow payments are a good option for many homeowners because they eliminate the surprise of a large annual payment when your property taxes or insurance premiums are due.
Talk to your lender about your escrow options as you may have the option to cancel your escrow payments once you have built up at least 20% equity in your home and are current on your payments. Just remember that you'll then be responsible for paying your taxes and insurance directly in full and on time.
For more information on buying and owning a home, visit My Home by Freddie Mac®.