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. The law is very specific in setting limits on the amount that the lender may collect. If the lender determines there will be or is a deficiency in the escrow accounts, the law permits the lender to require additional monthly deposits to avoid or eliminate the deficiency. When the servicing of your loan transferred to another lender, the new lender takes on the responsibility of managing your escrow account.