Borrowers say they are confident in their understanding of mortgage escrow accounts, but misconceptions persist. And rising property taxes and homeowners insurance premiums continue to drive payment increases that many homeowners do not expect.
These are the conclusions of a new survey from LERETA, a provider of technologically advanced tax and flood services for the mortgage industry.
The company’s third annual Borrower Escrow Survey, conducted among 1,037 homeowners, found that escrow-related payment increases are contributing to borrower frustration. LERETA’s analysis found that 57% of homeowners experienced an escrow-related payment increase, and satisfaction among these borrowers was significantly lower than among homeowners whose payments remained unchanged.
“Rising property taxes and insurance premiums continue to reshape what homeowners experience month to month, and escrow is often where that impact shows up first,” said Katie Brewer, CEO of LERETA. “This year’s survey reinforces that many borrowers feel confident in their understanding of escrow, yet misconceptions still persist and that gap can lead to real frustration when payments change.
“LERETA works alongside servicers to bring timely, accurate tax and flood data into their processes so they can communicate changes earlier, explain them more clearly, and help borrowers feel prepared instead of surprised.”
The survey also found that 61% of borrowers said they completely understand how escrow accounts work, a slight increase from 60% last year. Escrow accounts are used by mortgage servicers to collect funds for property taxes and insurance, which are then paid on the borrower’s behalf.
But despite this perceived understanding, confusion remains widespread. The survey found that 39% of borrowers mistakenly believe their total monthly mortgage payment cannot change if they have a fixed-rate mortgage and an escrow account, up from 36% a year earlier.
Among borrowers who experienced a payment increase, 62% said higher property taxes contributed to the change, up from 57% last year. Nearly half (48%) cited higher homeowners insurance premiums, while 21% pointed to rising flood insurance costs. More than one-quarter (26%) also cited interest rate changes.
Payment increases continue to catch many borrowers off guard. Among those who saw their monthly payments rise, 60% said they were surprised by the change, compared with just over half last year.
Borrowers generally recognize the primary components of escrow accounts. The survey found that 93% believe escrow includes funds to pay property taxes, up from 91% last year. But awareness of insurance coverage within escrow accounts was slightly lower, with 85% saying escrow includes funds to pay homeowners or flood insurance.
Mortgage servicers appear to have improved communication with borrowers, according to the survey. About 70% of borrowers said their mortgage company had communicated how rising taxes or insurance could affect their monthly payment, up from 56% last year. Additionally, 78% said their servicer communicates clearly about escrow, including about 30% who said they completely agree.
Affordability concerns remain significant, with nearly half of borrowers (47%) saying that a 10% monthly payment increase would be a hardship, while 15% said they could not handle such an increase. With a 25% cost increase, 40% of respondents said they would not be able to manage their payment.
Borrowers also expressed a desire for more transparency, with 72% expressing that it would be very helpful to access property tax bill information (including amounts and payment status) through their mortgage company’s website or mobile app.