In a mortgage, what does the term "escrow" typically refer to?

The term "escrow" in the context of a mortgage refers to funds that are held by a third party to cover property-related expenses. This usually includes items like property taxes and homeowners insurance. When a borrower takes out a mortgage, the lender may require them to pay a portion of these expenses into an escrow account as part of their monthly mortgage payment. The lender then pays the property-related expenses on behalf of the borrower using these funds when they are due. This process ensures that the necessary payments are made on time and that the property remains insured and tax obligations are met, thereby protecting the lender's investment as well as the borrower's property.

Other options, such as the total interest paid over the life of the loan or clauses in the mortgage agreement, do not capture the role of an escrow account in managing ongoing expenses associated with property ownership. Similarly, the property appraisal process relates to determining the value of the property for lending purposes rather than the management of funds for property-related payments.