Each month, your mortgage payment includes 1/12 of your annual property tax and insurance premiums. The lender holds these in an escrow account and pays the bills when they come due.

Escrow protects the lender (and the borrower) by ensuring taxes and insurance are paid on time — unpaid taxes can result in a tax lien superior to the mortgage.

Escrow is usually required for loans with less than 20% down. Once you have substantial equity, you can sometimes request to remove escrow and pay taxes/insurance directly.