Is there a limit on how much my mortgage lender can make me pay each month for insurance and taxes (the escrow)?
An escrow account is not required for every loan. But it can be an important protection for you, because it helps make sure that money is there when you need it to pay taxes and insurance. Failing to pay taxes and insurance can be expensive and can cause lots of hassles.
Before your loan closes, the lender will estimate the total annual expenses that need to be paid from the escrow account. You can be required to pay a part of the estimated annual total in advance, but no more than a maximum of one-sixth of the total (this gives you a two-month “cushion”). On top of the cushion, every month, your servicer can require you to pay one-twelfth of the total annual escrow payments the servicer reasonably anticipates paying out of the escrow account.
If you have a loan that’s considered “higher-priced,” then you might be required to pay into an escrow account for the first five years of the loan. Some loan types require escrow for the entire term of the loan. You’ll be notified if your loan is in this category, or if there’s an exception that applies to you.