Home Buyers
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What Is Insurance Escrow?

According to federal law, lenders can require you to buy home owner’s insurance to protect the home in case of fire, earthquake, tornado, or other catastrophe.  To pay for this insurance, lenders often will require home owners to pay the insurance premiums in the form of monthly payments that are tacked onto the regular mortgage payments of interest and principal.  The money goes into an insurance escrow.  Once a year, the lender will dip into that fund and pay the insurance premium.  Insurance is one of the four parts of PITI - principal, interest, taxes, and insurance - and one of the the basic costs of home ownership.  Overall, the insurance escrow works like the real estate tax escrow, except that you never get rid of it.

This Tip was excerpted from:
100 Questions Every First Time Home Buyer Shjould Ask, by Ilyce R. Glink, Random House, New York, NY, 1994.
ISBN# 0-8129-2283-2

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