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Escrow generally refers to money held by a third-party on behalf of transacting parties. It is best known in the United States in the context of real estate (specifically in mortgages where the mortgage company establishes an escrow account to pay property tax and insurance during the term of the mortgage).
Escrow accounts are used to pay for miscellaneous expenses such as property taxes and homeowner's insurance. The lender is allowed to collect additional money to keep in the account as overage in case the bills are higher than anticipated.However, there are laws in place that limit the overage amount the bank can keep in your escrow account.ender's can generally estimate what you will need for escrow without mistakes. However, there's a chance that their estimates are off. To cover for this, the lender collects overage -- usually called a cushion -- to hold in your escrow account.