While homeowners insurance is not included in your mortgage, it can be added to your mortgage payment through an escrow account set up by your lender. If you are a first-time homebuyer or made a down payment of less than 20%, your lender probably required you to have an escrow account. However, just because you were obligated to have it doesn’t make an escrow account a bad thing.
On the contrary, a home mortgage escrow account generally benefits both you and your lender because it facilitates the payment of property-related expenses, like home insurance, private mortgage insurance (PMI), and real estate taxes. You get help managing all these bills, and your lender gets peace of mind that these costs will be paid on time.
If your home loan didn’t include an escrow account, you would be responsible for these large bills when they came due once or twice a year. With an escrow account, you pay smaller amounts each month for your home insurance, PMI, and taxes, which are bundled together with your mortgage payment. When your insurance bill comes due, your lender will use the money that has accumulated in the escrow account to pay your home insurance company.
In case you are wondering, an escrow account will not make your home insurance premium more expensive; however, it should make it a whole lot easier and convenient to manage and pay.