My payment includes escrow? Why does that make my monthly look so much higher?

Why does escrow make my payment so much higher?

Your monthly payment looks higher because escrow means the lender collects property taxes and homeowner's insurance along with your principal and interest each month. Instead of paying these bills separately when they come due, you prepay a portion each month into an escrow account.

Escrow typically adds $200-500 per month to your payment, depending on your home's value and location. Property taxes and insurance costs vary widely by area—some buyers see their total payment increase by 30-50% when escrow is included. The lender uses your escrow funds to pay these bills when they're due, usually once or twice per year.

Check your Loan Estimate to see the escrow breakdown. Section G shows your monthly escrow amount, and page 2 details the annual costs for taxes and insurance. Compare these numbers to what you researched independently or ask your real estate agent about typical costs in your area.

Some loan programs require escrow, while others make it optional. Conventional loans sometimes let you skip escrow if you put down 20% or more. Your lender can walk you through whether escrow is required for your specific loan and explain how the monthly amount was calculated.