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
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.