Your escrow account pays property taxes on your behalf, but only if your mortgage lender required one
When you have a mortgage, your lender may require you to maintain an escrow account — a separate account held by the lender where you deposit money each month alongside your mortgage payment. That money covers property taxes, homeowners insurance, and sometimes mortgage insurance. The lender collects the funds, holds them, and pays your tax bill directly to the county when it comes due. You do not write the check yourself.
Not all mortgages require escrow. If you put down 20 percent or more, or if you refinanced into a loan that does not mandate it, you may pay property taxes directly to your county assessor instead. The difference matters: with escrow, the lender controls the timing and amount; without it, you control both but you are responsible for paying on time.
Key Takeaways
- Escrow accounts are required by most lenders when your down payment is less than 20 percent, and the lender holds and disburses the money for taxes and insurance.
- Your monthly mortgage payment includes an escrow portion calculated to cover your annual property tax bill divided by 12, plus insurance and other costs.
- The lender may adjust your escrow payment once a year after reviewing your actual tax bill and insurance costs, which can raise or lower your monthly payment.
- If your escrow account has a surplus or shortage at year-end, the lender must send you a statement explaining the difference and how it will be handled.
- You can request to remove escrow if you refinance or if your loan balance drops below 80 percent of your home's value, but the lender can refuse if you have a history of late payments.
How the escrow payment is calculated and adjusted
Your lender estimates your annual property tax bill and divides it by 12 to determine your monthly escrow deposit. The same math applies to homeowners insurance and any mortgage insurance premium. All three amounts are added to your base mortgage payment (principal and interest), and you send one check each month.
Once a year, usually in the fall, your lender reviews your actual property tax bill and insurance costs from the past year. If taxes or insurance went up, your monthly escrow payment increases. If they went down, it decreases. The lender must send you an escrow analysis statement showing the old payment, the new payment, and the reason for the change. This adjustment can happen without your consent — it is part of the mortgage agreement.
If your escrow account ends the year with a surplus (you paid more than was needed), the lender may credit it toward next year's payments, refund it to you, or hold it as a cushion. If there is a shortage (you paid less than was needed), the lender will ask you to make up the difference, usually by raising your monthly payment or requiring a lump-sum payment.
What happens if your escrow account runs short
A shortage occurs when your property taxes or insurance costs rise faster than the lender predicted. For example, if your county reassessed your home and raised your tax bill by $800 a year, but your escrow payment was only increased by $400, you have a $400 annual shortfall. The lender covers the difference temporarily but will adjust your payment to recover it.
Federal law (the Real Estate Settlement Procedures Act, or RESPA) limits how much a lender can require you to keep in escrow as a cushion — typically no more than one-sixth of your annual tax and insurance costs. If your account falls below that cushion, the lender must bring it back up. If it exceeds the cushion by more than 50 dollars, the lender must refund the overage within 30 days.
If you cannot afford the higher payment after an adjustment, contact your lender immediately. Some lenders will work with you to spread the shortage over several months rather than demanding it all at once, though they are not required to do so.
Removing escrow from your mortgage
You can request to remove escrow and pay property taxes directly to your county, but the lender can refuse. Most lenders will allow removal only if your loan-to-value ratio (the amount you owe divided by your home's current value) is 80 percent or lower. If you still owe $160,000 on a home worth $200,000, you meet that threshold. If you owe $180,000 on the same home, you do not.
Lenders also consider your payment history. If you have been late on your mortgage payment more than once in the past two years, the lender can deny your request. The logic is straightforward: without escrow, the lender has no may provide you will pay your taxes on time, and unpaid property taxes can lead to a tax lien that takes priority over the mortgage.
To request removal, contact your loan servicer in writing. Include your loan number and current property value. The servicer will review your request and respond within 30 days. If approved, you will receive a final escrow statement showing any balance owed or refunded, and your monthly payment will drop by the escrow amount.
What to do if you disagree with an escrow adjustment
If your escrow analysis statement shows an adjustment you believe is wrong, you have the right to dispute it. Request a copy of the property tax bill and insurance invoice that the lender used to calculate the new payment. Compare those documents to your own records or to what your county assessor and insurance company tell you.
If there is a discrepancy — for example, the lender used last year's tax bill instead of this year's — send a written dispute to your loan servicer with copies of the correct documents. The servicer must respond within 30 days and either correct the escrow payment or explain why the original calculation was right. Keep copies of everything you send.
If you still disagree after the servicer's response, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or your state's banking regulator. These complaints do not reverse the payment, but they create a record and may prompt an investigation if the servicer is systematically miscalculating escrow for many borrowers.
Escrow at closing and refinancing
When you close on a mortgage, the lender will collect an initial escrow deposit at the closing table. This is usually two to three months' worth of property taxes and insurance, held as a starting balance. You will see this amount on your Closing Disclosure form under "Prepaid Items" or "Escrow Deposit."
If you refinance your mortgage, the new lender will establish a new escrow account. Your old lender will send you a final escrow statement showing any balance owed or refunded. That refund typically arrives within 30 to 45 days after your old loan is paid off. The new lender will collect a new initial deposit at the refinance closing.
If you refinance into a loan that does not require escrow (because your down payment or equity is high enough), you will receive a refund of your entire escrow balance from the old lender. After that, you are responsible for paying property taxes directly to your county each year.
Escrow and property tax payment deadlines
Your county sets the property tax due date, usually in the fall or winter. The lender must pay your taxes by that deadline, or your county can place a tax lien on your home. This lien can eventually lead to a tax sale, which is why lenders take escrow seriously and why they require it for borrowers with less than 20 percent equity.
You do not need to track the deadline yourself if you have escrow — the lender handles it. However, if you removed escrow and pay taxes directly, missing the deadline can result in penalties, interest charges, and a lien. Set a calendar reminder for your county's due date each year, or set up automatic payment through your county assessor's website.
If your lender fails to pay your property taxes on time, you can hold the lender liable for penalties and interest. Document the late payment with a copy of the tax bill and the lender's payment record, then file a complaint with your state's banking regulator or the CFPB.
Frequently Asked Questions
Can I pay my property taxes myself even though I have escrow?
No. If your mortgage requires escrow, the lender controls the account and pays the taxes directly to your county. Paying separately could cause the county to receive double payment or create confusion about which payment is current. To pay taxes yourself, you must first remove escrow, which requires lender approval.
What if my property taxes go down — do I get a refund?
Not immediately. If your escrow account has a surplus at year-end, the lender may refund it, credit it to next year's payments, or hold it as a cushion. Federal law requires the lender to refund any surplus over 50 dollars within 30 days of the escrow analysis, but the lender can also apply it to your next payment if you agree.
Does escrow cover homeowners insurance too?
Yes. Most escrow accounts cover property taxes, homeowners insurance, and mortgage insurance (if required). Some also cover HOA fees or flood insurance. Your loan documents and monthly statement will show which items are included in your escrow payment.
What happens to my escrow account if I sell my home?
When you sell, the buyer's lender pays off your old mortgage at closing. Your old lender sends you a final escrow statement within 30 to 45 days showing any remaining balance. If there is a surplus, you receive a refund. If there is a shortage, you may owe the lender money, though this is rare if the escrow was properly maintained.
Can a lender change my escrow payment without telling me?
No. The lender must send you an escrow analysis statement at least once a year, usually before the change takes effect. The statement must explain why the payment changed and show the old and new amounts. If you do not receive this notice, contact your servicer and request a copy.