What term describes the funds withheld by a lender to cover potential future expenses?

The term that describes the funds withheld by a lender to cover potential future expenses is an "Escrow Account." An escrow account is specifically designed to hold funds that are earmarked for certain purposes, such as property taxes, homeowners insurance, or other expenses that may arise over the life of the loan. When borrowers make their monthly mortgage payments, a portion is often directed into this escrow account to ensure that these specific expenses can be covered when they come due. This arrangement helps protect both the lender and the borrower by ensuring that essential payments are made on time and that there are sufficient funds available when those costs materialize.

In contrast, a reserve fund typically refers to savings set aside for future projects or unexpected costs but isn't necessarily tied to the regular payments of a mortgage. A trust account is generally used by professionals, such as attorneys or real estate agents, to hold client funds temporarily. A collateral account, meanwhile, refers to funds or assets set aside to secure a loan or other obligation, rather than for covering routine or upcoming expenses.