Escrow accounts were originally established during the Great Depression of the 1930s, when Americans were unable to pay their property taxes because they were unemployed. It was hard enough, at that time, to come up with the money to pay for food and clothing, let alone a large tax payment.

Lenders and the government worked together to establish a way to keep people in their homes by attaching an extra payment every month to their mortgage payment. Escrow accounts were set up to hold that money in reserve, until it was time to pay taxes. Collections for insurance were also added so that all houses would be covered in the event of fires or other hazards.

That practice continues today, if required by your lender, to ensure that:
 

• Homeowners are protected from the possibility of losing their homes for missing tax payments.
  
  
• The escrow account will advance the funds to cover any unexpected increase in tax or insurance payments, which may result in higher monthly payments.