Escrow

Full definition

Escrow is a financial arrangement where a third party holds funds or assets until the terms of a contract are fulfilled. In consumer lending and real estate, escrow serves different functions: Mortgage escrow accounts: When you have a mortgage, the lender often requires an escrow account for property taxes and homeowners insurance. Each month, a portion of your mortgage payment goes into the escrow account. The lender uses those funds to pay your property taxes and insurance premiums when they come due. This protects the lender by ensuring taxes and insurance are paid (which protects the collateral). Real estate purchase escrow: When you buy a home, your earnest money deposit and eventually the full purchase price are held in escrow by a title company or escrow company until closing. The funds are released to the seller when all conditions are met (inspections passed, title cleared, loan funded). Personal loans and escrow: Standard personal loans do not involve escrow. When you get a personal loan, the lender disburses funds directly to your bank account (for general purposes) or sometimes directly to a creditor (for debt consolidation). There is no third-party escrow account holding the funds. Exception - contractor payment escrow: A few home improvement personal loan programs hold funds in escrow and release them to contractors upon completion of work milestones. This protects the borrower from paying in full upfront before work is complete. These programs are less common than standard personal loans but available from some lenders for renovation projects.

• Disbursement
• Loan Proceeds
• Home equity loan