An escrow account, also known as an impound account, is an account set up at the time you close your loan for the payment of your property taxes and homeowner’s insurance. You pay 1/12 of your annual taxes and insurance along with your mortgage payment each month and the funds are placed in the escrow/impound account. Your loan servicer pays your taxes and insurance out of the escrow/impound account when they come due. You receive an Escrow/Impound Analysis Statement each year, showing the activity and balance remaining in the account.
You are not required to have an escrow/impound account unless the Loan-to-Value ratio on your loan is over 80%. However, if you decide not to have an escrow/impound account, your closing costs may be higher. Talk to your loan advisor for more details.