Escrow funds at closing are typically used to cover which ongoing payments?

• A. Property taxes and homeowners insurance
• B. Mortgage interest only
• C. Roof replacement
• D. HOA fines

Answer: (A)

Escrow funds at closing are set aside to cover ongoing property-related expenses that recur regularly, ensuring they’re paid on time. The most common items collected into escrow are property taxes and homeowners insurance. Property taxes come due on a schedule set by local authorities, and having funds in escrow guarantees the lender that taxes won’t be missed and risk of tax liens is reduced. Homeowners insurance is required by lenders to protect the value of the collateral; collecting premiums through escrow helps ensure the insurance remains active. Mortgage interest isn’t paid from escrow—it's part of the regular mortgage payment (along with principal) and is handled separately. Roof replacement is a major, infrequent expense, not an ongoing monthly payment, and HOA fines are penalties, not regular loan-related costs.