An escrow account is a holding account your mortgage servicer keeps for your property taxes and homeowners insurance. Each month part of your payment goes in, and when the tax bill or the insurance renewal comes due, the servicer pays it from the account. That's why a Florida mortgage payment is quoted as PITI (principal, interest, taxes and insurance) instead of principal and interest alone.
FHA requires an escrow account for taxes, insurance and the annual mortgage insurance premium, and escrow is the standard setup on VA, USDA and Conventional loans too.
What goes into the monthly escrow payment
Take a $340,000 home with property taxes of 0.85% of the price and a $3,600 homeowners policy.
| Bill | Yearly | Monthly |
|---|---|---|
| Property taxes | $2,890.00 | $240.83 |
| Homeowners insurance | $3,600.00 | $300.00 |
| Escrow payment | $6,490.00 | $540.83 |
Federal rules let the servicer hold a cushion of up to one-sixth of the year's bills, about two months' worth, to absorb small increases. On this home that cushion can be as much as $1,081.67. The opening balance, including that cushion, is collected at closing as part of your prepaids.
Why Florida tax bills get paid in November
Florida property taxes are billed once a year, and state law gives a discount for paying early: 4% in November, 3% in December, 2% in January and 1% in February. Most servicers pay escrowed taxes in November to capture the full 4%. On the $2,890 bill above, that's $115.60 that stays in your account.
When the escrow payment changes
Once a year the servicer runs an escrow analysis, comparing what came in with what went out. Suppose the insurance renewal arrives at $4,200 instead of $3,600. The monthly escrow rises $50 to $590.83 to cover the new premium, and the $600 the account came up short is spread over 12 months, another $50 a month. For that year the escrow payment is $640.83, and it falls back to $590.83 once the shortage is repaid. A surplus works the other way: $50 or more comes back to you within 30 days.
Two Florida steps can pull the payment down. Filing for the homestead exemption on a home you live in lowers its taxable value, and a wind mitigation inspection can earn insurance credits for features such as hurricane straps and impact windows.
Put your county's tax estimate and an insurance quote into the mortgage payment calculator to see the escrow line in your payment. For the escrow figures on a specific home, call AAA Capital Funding at 888-601-8344.