Yes, escrow accounts typically pay your property taxes automatically

When you have a mortgage, your lender usually requires you to set up an escrow account — a separate account held by your mortgage servicer that collects money from you each month and pays your property taxes and homeowners insurance on your behalf. The servicer calculates how much you owe annually for taxes and insurance, divides that by 12, and adds that amount to your monthly mortgage payment. When the tax bill comes due, the servicer pays it directly to your county or municipality from the escrow account.

This arrangement protects the lender's investment in your home. If property taxes go unpaid, the government can place a lien on the property or foreclose on it — which would put the lender's loan at risk. By handling taxes through escrow, the lender ensures they get paid.

Key Takeaways

  • Your mortgage servicer collects escrow funds monthly as part of your mortgage payment and pays property taxes directly to your county when they are due.
  • The servicer estimates your annual tax bill, divides it by 12, and adds that monthly amount to your mortgage payment — you do not pay taxes separately.
  • Escrow accounts are required by most lenders but are optional in some states if you have substantial home equity.
  • If your property tax bill increases, your monthly mortgage payment will rise at the next escrow analysis, usually once a year.
  • You can request an escrow statement from your servicer to see exactly what taxes and insurance they paid on your behalf.

How the escrow payment process works month to month

Each month, you pay your mortgage servicer a single payment that includes principal, interest, taxes, and insurance — often called a PITI payment. The servicer deposits the tax and insurance portions into your escrow account and holds them until the bills are due. When your property tax bill arrives at the county assessor's office, the servicer pays it from escrow. The same happens with homeowners insurance premiums — the servicer pays the insurance company directly from escrow when your policy renews.

You never receive a separate tax bill or have to write a check yourself. The servicer handles the timing and the payment. This means you do not have to remember when taxes are due or worry about missing a important date.

When escrow accounts are required versus optional

Most mortgage lenders require escrow accounts for all borrowers. However, some states and some loan types allow you to waive escrow if you have paid down your mortgage significantly — typically when your loan-to-value ratio (the amount you owe divided by your home's value) drops below 80 percent. If you waive escrow, you become responsible for paying property taxes and insurance directly to the county and insurance company yourself.

Conventional loans, FHA loans, and VA loans all have different rules about when escrow can be waived. If you are interested in dropping escrow, contact your servicer to ask whether you are may be able to access and what the process is. Some servicers charge a fee to close an escrow account.

What happens when your tax bill changes

Your servicer estimates your property tax bill once a year, usually in the fall or winter, and adjusts your monthly escrow payment accordingly. If your county reassesses your home and your taxes increase, your monthly mortgage payment will go up at the next analysis. If taxes decrease, your payment may go down. The servicer sends you an escrow analysis statement that shows the old estimate, the new estimate, and your new monthly payment.

Sometimes the servicer's estimate is too high or too low. If they collected more than they needed to pay your taxes and insurance, you may receive a refund or a credit toward future payments. If they collected too little, you may owe a shortage — either as a lump sum or spread across your next 12 monthly payments, depending on the servicer's policy and your state's rules.

How to review your escrow account

You have the right to request an escrow statement from your servicer at any time. This statement shows how much money the servicer collected from you, how much they paid out for taxes and insurance, and what balance remains in the account. You can use this to verify that the servicer paid the correct amounts and to understand why your payment changed.

If you notice an error — for example, if the servicer paid a bill twice or used an outdated tax estimate — contact your servicer in writing and ask them to investigate. Federal law requires servicers to respond to escrow disputes within 30 days. Keep copies of your property tax bills and insurance invoices so you can compare them to what the servicer reports.

What to do if you want to stop using escrow

If your lender allows you to waive escrow and you decide to do so, you will need to pay property taxes and homeowners insurance on your own schedule. This means you must track when bills are due, set aside money each month, and submit payments to the correct offices. Missing a property tax payment can result in penalties, interest, and eventually a tax lien on your home.

Before you waive escrow, make sure you have a system in place to pay on time. Some people set up automatic payments with their county or insurance company. Others use a calendar reminder and pay manually. The advantage of waiving escrow is that you keep the money in your own account and earn interest on it until the bill is due. The disadvantage is that you bear the responsibility if a payment is late.

Escrow and refinancing your mortgage

When you refinance your mortgage, your new lender will typically set up a new escrow account. The old servicer will close the old escrow account and send you any remaining balance, usually within 30 days. Your new servicer will then estimate your taxes and insurance and set up a new monthly payment. There may be a brief period where you have to pay property taxes or insurance directly if the timing does not align, so ask your new lender about the transition before closing.

If you are refinancing to a loan type that does not require escrow — for example, if you are switching from an FHA loan to a conventional loan and you have enough equity — you may be able to waive escrow with your new lender. Discuss this option during the refinancing process.

Frequently Asked Questions

Can I pay my property taxes directly instead of through escrow?

Only if your lender allows you to waive escrow, which typically requires substantial home equity. If escrow is required, you must pay through the servicer. Paying the county directly while escrow is active can create confusion and duplicate payments.

What if my escrow account does not have enough money to pay my tax bill?

Your servicer will cover the shortage from their own funds and then bill you for it. You can either pay the shortage in one lump sum or ask the servicer to spread it across your next 12 monthly payments. The servicer will adjust your monthly escrow payment going forward to prevent future shortages.

Do I get interest on money sitting in my escrow account?

In most states, servicers do not pay interest on escrow balances. Your money sits in the account earning nothing until the servicer pays your bills. Some states require servicers to pay interest, so check your state's rules or ask your servicer directly.

How often does my escrow payment change?

Your servicer reviews your escrow account at least once a year and adjusts your payment if needed. If your property taxes or insurance premiums change significantly mid-year, the servicer may adjust your payment sooner. You will receive a new escrow analysis statement whenever your payment changes.

What happens to my escrow account if I sell my home?

When you sell, your loan is paid off at closing. The servicer closes your escrow account and sends any remaining balance to you, usually within 30 days. If there is a shortage, you will owe it at closing. Your new lender (if you are buying another home) will set up a new escrow account.