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An important component of the monthly mortgage payment is escrow. Option One Mortgage wants every consumer who takes out a mortgage loan to understand how escrow works, why it exists, and what it means for them as a homeowner.

As consumers know, taking out a home mortgage means that the lending institution has a lien on your property. Should you default on your mortgage loan, the property may need to be sold by the lending institution in order to recoup its investment. That is why the lending institution has a strong vested interest in maintaining the home’s market value and clear title.

If a home is not covered by proper insurance and something happens to it, the home’s value suffers and there is no way to recoup it. The lending institution wants to know for certain that the insurance policy is not going to get cancelled for non-payment of premiums. Even a short lapse in coverage can have dire consequences and result in financial penalties.

The same applies for taxes due on the home. The lending institution does not want to find out too late that the government is taking action against the property for non-payment of taxes.

To avoid both these scenarios, loans originated by Option One Mortgage and other lending institutions come with what is referred to as an escrow account. Each time the consumer makes a monthly payment on their home mortgage loan, part of the amount is put into the escrow account. While the tax bill and insurance premium are paid out of the escrow account, a cushion is kept behind to hedge against any potential default made by the homeowner.


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