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When you’re buying a home — whether as a first-time home buyer or an experienced one — there’s a better-than-average chance you’ll encounter confusing jargon, and unfamiliar terms and phrases.

One such term is “escrow”.

Escrowing your taxes and insurance reduces your lender’s risk, and can earn you a lower, better mortgage rate quote. Escrow can also simplify your life.

In mortgages, escrow refers to the accounts used to pay a homeowner’s property taxes and hazard insurance.

Each month, you send to your lender 1/12 of the annual amount due for taxes and insurance along with your usual calculator-pen-spreadsheetmortgage payment. Then, when the bills come due, the lender pay them on your behalf.

Believe it or not, you will actually get a lower rate on your mortgage, because escrowing your taxes and insurance makes it less likely your home’s tax bill won’t get paid; or, that its insurance coverage will lapse. When you escrow, the lender doesn’t have to worry about a seizure on the property by tax authorities, nor do they need to fear losses from property damage resulting from inadequate insurance coverage.

Escrowing reduces your lender’s risk, so your lender rewards you with a lower, better mortgage rate quote.

Source: All About Mortgage Escrow Accounts For Mortgages