Mortgage Escrow Account
Synonyms: Escrow Account، Impound Account، Mortgage Escrow
Last updated: 2026-09-25
Short Definition
A mortgage escrow account is a lender-managed account, common with US mortgages, into which part of each monthly payment is set aside to pay the borrower’s annual property taxes and insurance premiums on time, protecting the collateral.
Overview
Legal Basis
No Saudi law requires an escrow account for property taxes and insurance within real-estate finance. Disclosure of insurance cost is governed by SAMA’s Instructions When Offering Real Estate Finance Products for Individuals (Circular No. 46544/99 dated 2/9/1439H) and the Implementing Regulation of the Finance Companies Control Law (definition of total cost of finance, and Art. 78 on stating guarantees and insurance in the contract). The escrow account for off-plan projects is governed by the Off-Plan Real Estate Projects Sale and Lease Law issued by Royal Decree No. (M/44) dated 10/3/1445H (Arts. 9–14), applied through the Wafi programme under the Real Estate General Authority (REGA).
Practical Example
Noura, a citizen buying her first home, purchases an off-plan apartment in a Wafi-licensed project for SAR 900,000. She pays a SAR 90,000 down payment and the bank finances SAR 810,000 (90%, the ceiling for a citizen’s first home). No escrow account is opened for property taxes, since her home carries no annual property tax, and the insurance cost appears in the disclosure form as part of the financing. Instead, her payment and the bank’s tranches are deposited in the project escrow account; the developer can draw on it only with a disbursement document signed together with the consulting office and the chartered accountant according to construction progress, and the developer’s creditors cannot attach these funds.
Common Mistakes
- ✗Importing the US escrow concept wholesale and expecting the financier to require it for annual taxes that do not exist on Saudi homes.
- ✗Ignoring the insurance cost built into the financing when comparing offers, although it appears in the disclosure form and in the total cost.
- ✗Confusing a mortgage escrow account with the off-plan project escrow account, which is governed by its own law.
- ✗Paying reservation money for an off-plan unit directly to the developer outside the project escrow account, which exposes the buyer to risk and is a legal violation.
- ✗Confusing the Real Estate Transaction Tax, due once on transfer of ownership, with the annual property taxes found in other countries.
International Differences
Mortgage escrow (impound) accounts are standard in the United States, where the lender collects local property taxes and homeowners insurance with the monthly payment. In the UK they are not normally used because council tax is paid directly by the occupier, and in Turkey the owner pays the annual property tax to the municipality personally. In the UAE, as in Saudi Arabia, escrow accounts are used mainly for off-plan projects. The absence of mortgage escrow in the Saudi market reflects the absence of an annual property tax on homes.
