Most mortgage loans (1st lien) require that you establish an escrow account at the time the loan closes. The monies you place into the escrow account are held by the lender or loan servicer and are used to pay property taxes, hazard insurance (including flood insurance if required) and other future obligations. By putting the monies into the escrow account with each loan payment, you help ensure that when a tax or insurance payment becomes due, there are sufficient monies in the account to pay the item.
The initial amount placed into the escrow account, as well as the monthly payment amount, is established at the time of loan closing and is based on when items are required to be paid. Further, the amounts are limited by the Real Estate Settlement Procedures Act (RESPA).