Escrow Understanding Is Steady, But Misconceptions Persist, LERETA Finds

(Illustration: Stock photo courtesy of Goran Grudić via pexels.com)

More than three in five borrowers say they completely understand how a mortgage escrow account works. But confusion remains around how escrow can affect the monthly total payment, according to LERETA, Pomona, Calif.

“Rising property taxes and insurance premiums continue to reshape what homeowners experience month to month, and escrow is often where that impact shows up first,” LERETA CEO Katie Brewer said. “This year’s survey reinforces that many borrowers feel confident in their understanding of escrow, yet misconceptions still persist and that gap can lead to real frustration when payments change.”

LERETA’s third annual Borrower Escrow Survey found that39% of borrowers mistakenly believe their total monthly mortgage payment cannot change if they have a fixed-rate mortgage and an escrow account, up from 36% last year.

Nearly all borrowers (93%) believe escrow includes funds to pay property taxes, up from 91% last year. Borrowers are less consistent on insurance, although more than four in five (85%) believe escrow includes funds to pay homeowners and or flood insurance.

Even as awareness improves in some areas, payment changes still catch borrowers off guard, the LERETA report said. Among borrowers who experienced a payment increase, three in five (60%) said they were surprised, up from just over half (53%) who said that a year ago. Property taxes remain the most frequently cited driver of payment increases, rising from 57% last year to nearly two-thirds (62%) this year.

Insurance-related impacts also increased, with nearly half (48%) citing higher homeowners insurance premiums and about one in five (21%) citing higher flood insurance premiums. More than a quarter (26%) also cited interest rate changes.

The report noted that more than two-thirds of borrowers (70%) say their mortgage company has communicated how rising property taxes and or insurance costs could change their monthly payment, up from 56% who said this last year. Separately, more than three-quarters (78%) agree their mortgage company communicates clearly about escrow, including 29.9% who completely agree and 48.3% who agree.