Escrow, mechanically

Escrow is a prepaid reserve against known bills. Lesson 3 put tax and insurance inside the payment as a $485.33 leg. This lesson is where that leg sits: in an account the lender holds, draws on when the bills fall due, and replenishes every month at the average. The payment you see is the average. It is not each bill.

Kestrel Home Finance's annual tax $4,180 plus annual insurance $1,644 equals $5,824. Monthly escrow is $5,824 ÷ 12 = $485.33. A two-month cushion, illustrative, is 2 × $485.33 = $970.66, collected up front and held. When the tax bill of $4,180 arrives, the account pays it. When the insurance bill of $1,644 arrives, the account pays it. Twelve deposits of $485.33 are meant to equal those two exits, plus the cushion that was already sitting there.

Track 1 lesson 7's headroom is a cushion measured in collateral: how far the mark can fall before a test fails. Escrow is a cushion measured in cash: how many months of known bills are already held before the next due date. Same role, other unit. The house is not the reserve. The cash collected in advance is the reserve.

Nothing about escrow changes r, P, or n. The PI line from lesson 1 is still $1,986.45. The escrow line is a pass-through of bills the loan did not compute, held so that those bills are paid on their own calendars without a separate cash event each time. The next lesson is what happens when the bills reprint larger than the average that was being collected.

The monthly figure is an average of known bills, plus a cash cushion. It is not the tax bill, and it is not the insurance bill.