Because of escrows, homeowners also do not need to worry about calculating unexpected increases in their taxes or insurance premiums. It is the responsibility of the lender to allow for possible increases in these payments. Even when there are not enough funds in a mortgage escrow account to meet increased tax or insurance payments, the lender typically covers the bill without charging interest to the borrower. It is very common for lenders to pay taxes and insurance premiums when they are due even though all the money for these bills has not yet been collected from the homeowner. Mortgages have lower rates and down payments because of escrows.
Escrows protect the interests of investors in home mortgage loans.
By making home mortgages more attractive and secure as investments, escrowing has led to a healthier mortgage market. As a result, loans with better terms and lower down payments are available to homebuyers. Local governments save money. Escrow accounts also benefit local governments by providing a more efficient, less expensive means of tax collection. Rather than working with millions of homeowners, municipalities need only collect from a few hundred lenders.