What is a common requirement for lenders to manage payment of property taxes and insurance?

What is a common requirement for lenders to manage payment of property taxes and insurance?

• A. Escrow Account
• B. Trust Account
• C. Reserve Account
• D. Investment Account

Answer: (A)

An escrow account is commonly required by lenders to manage the payment of property taxes and insurance on behalf of the borrower. This account serves as a neutral holding account where a portion of the monthly mortgage payment is deposited to cover these expenses. The lender collects these funds along with the mortgage payment and disburses them directly to the appropriate tax authority and insurance company when payments are due. The use of an escrow account provides several advantages. It helps ensure that property taxes and insurance premiums are paid on time, reducing the risk of penalties or lapses in coverage. Borrowers benefit from not needing to manage these large, annual payments themselves, as the funds are collected gradually throughout the year. This arrangement promotes financial stability and peace of mind for both the lender and the borrower, as it ensures that essential obligations related to the home are consistently met.

An escrow account is commonly required by lenders to manage the payment of property taxes and insurance on behalf of the borrower. This account serves as a neutral holding account where a portion of the monthly mortgage payment is deposited to cover these expenses. The lender collects these funds along with the mortgage payment and disburses them directly to the appropriate tax authority and insurance company when payments are due.

The use of an escrow account provides several advantages. It helps ensure that property taxes and insurance premiums are paid on time, reducing the risk of penalties or lapses in coverage. Borrowers benefit from not needing to manage these large, annual payments themselves, as the funds are collected gradually throughout the year. This arrangement promotes financial stability and peace of mind for both the lender and the borrower, as it ensures that essential obligations related to the home are consistently met.