For many Texas homeowners, the monthly mortgage payment includes much more than principal and interest. Property taxes and homeowners insurance are often collected each month and held in an escrow account, then paid by the loan servicer when the bills come due. Understanding how escrow works explains why your payment can change even on a fixed-rate loan.
What an escrow account is
An escrow account (sometimes called an impound account) is an account your mortgage servicer manages to pay certain property-related bills on your behalf. Each month, part of your payment goes into the account. When your property tax bills and insurance premiums are due, the servicer pays them from it. Some loans require escrow; others allow you to pay these bills yourself if you meet the lender's conditions.
What is usually included
- Property taxes owed to the county, city, school district and any special districts
- Homeowners insurance, and windstorm insurance where it is a separate policy
- Flood insurance, if required or chosen
- Mortgage insurance premiums on some loans
HOA dues are usually not escrowed; most owners pay the association directly.
Texas property taxes and escrow timing
In Texas, property tax bills are generally mailed in the fall and become delinquent if not paid by the end of January. Your servicer typically pays them before the deadline using escrow funds. Because the bill depends on your appraised value, exemptions and the rates adopted by each local taxing unit, it can change from year to year. Rising values or rates mean the servicer needs to collect more.
The annual escrow analysis
Federal rules under the Real Estate Settlement Procedures Act (RESPA) require servicers to review escrow accounts at least once a year and send you an annual escrow statement. The analysis compares what was paid out with what was collected and projects the next year's bills.
- Shortage: if the account is projected to fall short, your monthly payment increases. Servicers commonly let you pay the shortage in one lump sum or spread it over the coming year.
- Surplus: if too much was collected, federal rules generally require the servicer to refund surpluses above a small threshold when your loan is current.
- Cushion: servicers may keep a limited cushion in the account to cover unexpected increases. Federal law caps how large it can be.
How to read your escrow statement
- Compare the tax and insurance amounts the servicer paid with your actual bills.
- Check that your homestead and any other exemptions are reflected in the tax amount.
- Look at the projected payments for the coming year and the new monthly escrow amount.
- Contact the servicer promptly if you find an error, and keep copies of your bills.
Ways to keep escrow surprises small
- Apply for the residence homestead exemption as soon as you are eligible.
- Review your notice of appraised value each spring and protest if you think the value is too high.
- Shop your homeowners insurance before renewal and tell your servicer if you change carriers.
- Set aside a little extra each month so a payment increase does not strain your budget.
Key takeaways
- Escrow lets your servicer pay property taxes and insurance from monthly deposits.
- Texas tax bills change with values, exemptions and local rates, so escrow payments change too.
- Each year's escrow analysis can lead to a shortage, a surplus refund or a new monthly amount.
- Checking your statement and your exemptions helps catch errors early.
This article is general information, not legal, insurance, tax or lending advice. Rules and lender requirements change, so confirm details with your lender, the relevant Texas agency or a licensed professional.