Glossary
Escrow
A holding account your servicer uses to collect and pay property taxes and insurance alongside your mortgage payment.
With a mortgage escrow account, your servicer collects one-twelfth of your annual property taxes and homeowners insurance with each monthly payment, then pays those bills on your behalf when they come due. It spreads two large annual costs into manageable monthly pieces and guarantees the lender that taxes and insurance stay current. Your payment can rise or fall each year as taxes and premiums change, even when your interest rate is fixed.
Related terms
- Underwriting The process a lender uses to verify your income, assets, debts, and credit before approving a loan — the "yes or no" behind every offer.
- APR Annual percentage rate — the interest rate plus mandatory fees, expressed as one yearly cost. The only honest way to compare two loan offers.
- Charge-off When a creditor gives up trying to collect a debt through normal billing and writes it off as a loss — typically after 180 days of non-payment.
- Short sale Selling a home for less than what is owed on the mortgage, with the lender's approval — an alternative to foreclosure.
- Loan-to-value ratio The loan amount divided by the property's value, expressed as a percentage — a core number in mortgage and home-equity underwriting.
- Prepayment penalty A fee some lenders charge for paying a loan off early. Rare on consumer loans, common in commercial lending — always check the note.