Escrow
An escrow account is a holding account your mortgage servicer uses to collect and pay your property taxes and homeowners insurance on your behalf. A portion of each monthly payment goes into escrow, so large annual tax and insurance bills are spread evenly across the year instead of hitting all at once.
This is why a fixed-rate mortgage payment is not actually fixed. Only principal and interest are locked; the escrowed portion covering property tax and homeowners insurance is reviewed annually and adjusted, so a payment can rise several times over the life of a loan the borrower was told would never change. A shortfall after a tax reassessment or an insurance increase is usually collected two ways at once — a lump sum or spread over twelve months, plus a higher ongoing payment — which is how a payment jumps by more than the underlying increase. Servicers must provide an annual escrow statement, and it is worth reading. The word also describes the neutral third party holding funds during a purchase.