Struggling Homeowners Often Don’t Understand Escrow

Mortgage escrow accounts are an important, yet widely misunderstood asset in the housing market. Although 80% of mortgage holders have escrow accounts, only 60% fully understand them, up from 52% in early 2024. And those who don’t understand are paying dearly.

That finding comes from a survey released Tuesday by tax and flood services provider LERETA. The December Annual Escrow Awareness survey questioned 1,000 homeowners on how their escrow accounts would affect their mortgage payments.

LERETA highlighted that 68% have experienced monthly mortgage payment increases due to rising property taxes and insurance premiums. Of that percentage, over half were surprised to see increases. Almost half (44%) of respondents also said they would experience hardship if their mortgage payments increased.

LERETA also found that 49% of respondents would consider selling and moving if property taxes increased. Meanwhile, 27% would do the same if insurance costs skyrocketed.

But mortgage payment increases were more than a possibility for most escrow account holders. Since 2023, 80% of respondents saw property tax increases. After that, 70% had higher homeowners’ insurance and 57% had higher premiums.

Escrow accounts are required for conventional borrowers with 20% or less equity in their homes. Federal Housing Administration (FHA) loan borrowers must maintain escrow accounts for the entire loan cycle, regardless of equity. Borrowers with lower equity may face high mortgage payments, but those payments won’t change with under utilized escrow accounts.

The survey also found that 45% or respondents mistakenly believe their payments cannot change with a fixed-rate mortgages, up from 36% in 2024.

LERETA CEO John Walsh urged homeowners to prioritize understanding their escrow accounts, or bear the brunt of rising property taxes and insurance premiums.

“The rising costs of homeownership, driven by escalating property taxes and insurance premiums, pose significant challenges for homeowners across the country,” said Walsh. “As these expenses account for an increasingly larger share of monthly mortgage payments, it’s more important than ever for homeowners to understand how escrow accounts work to avoid any confusion or financial stress.”

Most borrowers believed they could access escrow information from their lender’s website, and 82% knew how to access it. Over 70% of borrowers found lenders were helpful with escrow information, while 21% still wanted more information.

“It’s clear from this survey that lenders are doing a good job of making escrow account information available to borrowers, but some homeowners still feel undereducated,” Walsh added.

Property taxes rose nationwide throughout 2024, following soaring home prices. A report by property data provider CoreLogic found that tax payments climbed 27% between 2019 and 2024. CoreLogic also said “short of government-led changes, homeowners will continue to contend with rising property taxes year after year.”

Those increases are already occurring as 2025 kicks off. For example, property values in Maryland rose 20% on average over the last three years, according to a Maryland REALTORS report. Property taxes are expected to rise to the extent that the state is offering property tax credits to help homeowners stay above water. If home prices don’t reverse course, other states will likely follow suit.