Financial activities are one of the most streamlined practices that involve various kinds of arrangements and services. An escrow account or Escrow payment is a service or an arrangement that involves a third party to perform receiving and disbursing property and money between the main parties performing the transaction. But how does exactly that happens? Well, let’s check it out in the given blog.
The simple definition of an escrow account is that it's an account where the third party has access to escrow funds or assets. These assets or funds are transferred when the obligatory party has completed the obligations. So, if party A has agreed to pay party B for organizing an event, then the Escrow account created will store the funds. These funds will be then disbursed when B completes his obligation to organize the event.
Escrow accounts are usually created in cases of housing loans and mortgages that require monthly payments. Such payments are critical as they ensure that the lender, which is a bank usually, gets the complete assurance of the payee's credibility. An Escrow account facilitates risk mitigation.
Now, you may wonder why do I need an escrow account? Well, the most important reason to attain escrow payments is that it enables the protection of transaction and avoid fraud. Though you'll have to select a very reliable person or organization, escrow payments and account arrangements add convenience to your loan logistics.
Before we move on to how escrow works, let’s pen down some important things about escrow.