In addition to the principal and interest portion of your monthly payment, the terms of your loan agreement allow the lender to collect funds from you for the payment of your real estate taxes, insurance bills, and sometimes other items.
These additional funds are referred to as the escrow portion of your payment. They are collected throughout the year and paid on your behalf.
Typically, if you put more than 20% down on the purchase of your home or if there is more than 20% equity in a home at the time of refinance you will have the ability to waive an escrow account.
Next week, we will cover how you can avoid MIP/PMI!