In mortgage escrow, which item is typically included?

In mortgage escrow, which item is typically included?

• A. Property taxes and homeowners insurance
• B. Principal reduction
• C. Mortgage closing costs
• D. Laundry costs

Answer: (A)

Escrow is a reserve that the lender uses to ensure ongoing property charges are paid on time. The two items that are typically included are property taxes and homeowners insurance, because these are recurring, required costs tied to owning the home and essential to protecting the lender’s security. By collecting these amounts with each monthly mortgage payment, the lender can pay taxes and insurance when they come due, preventing missed payments or lapses in coverage. This is why they’re part of the regular payment along with principal and interest, often described as PITI. Principal reduction is the portion of your payment that lowers the loan balance, not an escrow item. Mortgage closing costs are paid at the time you close the loan and aren’t the ongoing monthly escrow items. Laundry costs aren’t related to the mortgage or property obligations.

Escrow is a reserve that the lender uses to ensure ongoing property charges are paid on time. The two items that are typically included are property taxes and homeowners insurance, because these are recurring, required costs tied to owning the home and essential to protecting the lender’s security. By collecting these amounts with each monthly mortgage payment, the lender can pay taxes and insurance when they come due, preventing missed payments or lapses in coverage. This is why they’re part of the regular payment along with principal and interest, often described as PITI.

Principal reduction is the portion of your payment that lowers the loan balance, not an escrow item. Mortgage closing costs are paid at the time you close the loan and aren’t the ongoing monthly escrow items. Laundry costs aren’t related to the mortgage or property obligations.