What is an Escrow Account typically used for?

An escrow account is primarily used to store funds specifically designated for property taxes and insurance payments related to the home. When a borrower has a mortgage, their lender often requires an escrow account to ensure that these essential bills are paid on time. Each month, a portion of the borrower’s mortgage payment is deposited into this account, accumulating the necessary funds to cover upcoming property tax and insurance premiums as they come due.

This system benefits both the lender and the borrower. It provides the lender with assurance that these critical expenses are being managed, reducing the risk of tax liens or uninsured losses. For the borrower, it simplifies budgeting by spreading these large, annual costs into smaller, manageable monthly payments.

The other options do not accurately describe the function of an escrow account. Holding the property title until the mortgage is paid off pertains more to title companies or the closing process, while depositing money for repairs and maintenance is generally managed through different accounts or budgeting processes. Calculating total loan interest is part of loan amortization and financial calculations, not related to how escrow accounts operate.