An escrow account, also known as a seizure account, is a financial tool used to protect the interests of both the lender and the borrower. It is primarily used to ensure that taxes and insurance are paid on time, but it can also come with some drawbacks. Let's take a look at the pros and cons of escrow accounts.
The Pros
An escrow account can be beneficial for borrowers because it helps them budget for taxes and insurance. It also provides peace of mind that these payments will be made on time.Additionally, some mortgage lenders may require a larger down payment to start an escrow account, which can be beneficial for those who are able to make the payment.
The Cons
An escrow account can be costly upfront and cause payments to fluctuate annually. This can be an inconvenience for homeowners who are used to making a fixed payment each month. Additionally, paperwork is often required when setting up an escrow account, which can be tedious and time-consuming. Depending on the type of loan and its specific characteristics, you may not have the option of giving up an escrow account. For example, Federal Housing Administration mortgages intended for the seizure of security deposits should be required of low- and moderate-income homebuyers. Overall, an escrow account can be beneficial for both lenders and borrowers.However, it is important to consider the pros and cons before deciding if it is right for you.
