The word escrow shows up twice in home buying. During the purchase, escrow is a neutral third party holding the deposit and paperwork until closing. After the purchase, escrow is an account your mortgage servicer keeps to pay property taxes and homeowners insurance on your behalf. The second meaning is the one that affects your monthly budget for years.
Each month, the payment you send includes principal and interest plus one-twelfth of the estimated annual tax and insurance. The servicer parks that portion in escrow and pays the county and the insurer when the bills come due. A $2,400 mortgage payment might be $1,850 of principal and interest and $550 of escrow.
Once a year the servicer runs an escrow analysis. If taxes or insurance went up, the monthly payment rises to cover the new amount plus any shortfall from the year just ended. This is why a fixed-rate mortgage payment still changes. A property reassessment or a jump in insurance premiums can raise the payment by $100 to $300 a month with no warning beyond a letter.
Escrow is usually required when the down payment is under 20%. Above that, some lenders let you waive it and pay taxes and insurance directly, which means setting up your own sinking fund.
The common mistake is treating the mortgage payment as fixed and being caught by the annual adjustment. Checking the county's assessment schedule and the insurance renewal ahead of the analysis avoids the surprise.