What Is an Escrow Payment? The Two Different Escrows in Home Buying

Escrow is one of those words in real estate that means two completely different things, and nobody bothers to tell you which one they are talking about. Your loan officer says “your escrow payment is $487 a month.” Your title company says “the funds are in escrow.” Your closing disclosure has an “escrow account” line that has nothing to do with either of those sentences. By week three of the home buying process, you have heard the word twenty times and you have stopped asking.

Two different escrows. Two different purposes. Two different parties holding the money. Once you separate them, the rest of the terminology gets a lot easier.

Escrow Number One: The Mortgage Escrow Account

When your loan officer says “escrow payment,” they are talking about the part of your monthly mortgage payment that is NOT principal and interest. Your full monthly payment has four components, abbreviated as PITI:

P rincipal. The portion of the loan you are paying back.