Escrow account (impound)

Many mortgages include an escrow (or impound) account. Each month you pay a slice of the year's property taxes and insurance premiums along with your principal and interest, and the servicer holds that money and pays those bills when they're due.

Escrow smooths large, irregular bills into a level monthly amount and assures the lender that taxes and insurance — which protect the collateral — actually get paid. Once a year the servicer reviews the account and adjusts the monthly amount if taxes or premiums changed.

In Florida, where insurance premiums can move sharply, an escrow adjustment is the usual reason a fixed-rate borrower's total payment changes from one year to the next.