How to review your first escrow analysis and tax bill
Your escrow analysis compares what your servicer collected with what taxes and insurance now cost. If costs rose, you may have a shortage and a higher payment. Check the tax and insurance figures against your real bills, and remember that federal rules limit the cushion and require refunds of $50 or more.
What an escrow analysis shows
Each year your servicer projects the next 12 months of property tax and insurance bills, then resets your monthly deposit. The statement looks backward too, showing what came in, what went out and how the account ended up.
Three words matter. A surplus means you paid more than needed. A shortage means the account balance is below the target. A deficiency means the account has gone negative. The target can include a cushion, which federal rules cap at one-sixth of the year's estimated bills, or about two months' worth.
When your first escrow statement arrives
You should get an initial escrow statement at closing or within 45 days. After that, the servicer must send an annual statement within 30 days after the escrow year ends. For a new owner, the first analysis often arrives about a year after closing. Review it the day it comes, since the new payment may start soon after and your autopay may need adjusting.
Escrow shortage math and what your servicer can do
Sample figures: when you closed, taxes were $3,600 a year and insurance was $1,800. Your new tax bill is $4,800, and your first analysis finds a $1,200 shortage.
| Line | Year 1 | Year 2 | Year 3 |
|---|---|---|---|
| Yearly bills | $5,400 | $6,600 | $6,600 |
| Monthly escrow for bills | $450 | $550 | $550 |
| Shortage spread over 12 months | None | $100 | None |
| Total monthly escrow | $450 | $650 | $550 |
The payment jumps for two reasons, the higher bill and the catch-up. Federal rules then control what the servicer can do.
| Result | What the servicer may do |
|---|---|
| Surplus of $50 or more | Must refund it within 30 days of the analysis, if you're current |
| Surplus under $50 | May refund it or credit next year's payments |
| Shortage under one month's payment | May let it stand, ask for repayment within 30 days, or spread it over at least 12 months |
| Shortage of one month's payment or more | May let it stand or spread it over at least 12 months |
How to review your first escrow analysis
- Gather your bills
Pull your latest property tax bill, your insurance renewal and your initial escrow statement from closing.
- Match the disbursements
Check that each tax and insurance payment on the statement matches a real bill in amount and date.
- Check next year's projection
Compare the projected taxes and insurance with your newest bills. Ask the servicer to rerun it if a lower real bill wasn't used.
- Test the cushion
Find the target low balance and compare it with one-sixth of the projected yearly bills.
- Decide how to handle a shortage
See how the servicer plans to collect it. Ask if paying a lump sum is an option, since that would keep the monthly payment lower.
- Update your payment
Change any fixed autopay or bill pay amount before the new payment date, and add the increase to your budget.
- Check your tax value
If the assessed value looks too high, find your county's appeal deadline right away.
How your local tax bill affects an escrow analysis
How much your tax bill moves after a purchase depends on where you live. In California, a sale generally resets the home's value to market value. Orange County notes that escrow may be based on the prior owner's lower value, so collections can fall short. Other states reassess on their own schedules. Appeal windows are local too. Orange County's runs July 2 to November 30, and yours will differ. Ask your county assessor about your deadline and about any homestead exemption. In Orange County, exemptions don't carry over, so a new owner has to apply.
Escrow analysis errors to look for
- A projection using an old tax bill, or one that misses an exemption you've been approved for.
- A cushion above the one-sixth limit. Divide the cushion by the yearly bills to test it.
- An insurance premium that doesn't match your renewal. Ask your agent to shop or explain any jump.
- A late or missed bill. Your servicer pays these for you, but check that it did. Unpaid taxes can bring penalties or a lien, and lapsed insurance can lead to costly force-placed coverage.
- Bank bill pay set to a fixed amount. It will keep sending the old payment and leave you short.
If the numbers look wrong, write to your servicer and ask for a correction. Don't simply pay less. An underpaid mortgage can create larger problems.
What homeowners say about why escrow went up
Expect the payment to change. Owners report jumps in property tax (one town voted a 21% increase) and insurance premiums that doubled or tripled within a few years of buying. Budget for increases, not the payment at closing. (Hacker News)
Escrow refund and shortage questions
Why did my mortgage payment go up after the first year?
Usually your property tax or insurance rose, or the escrow you paid at the start was based on old figures. A shortage repayment can add to the increase for a year, so the payment may drop a little afterward.
Do I have to pay an escrow shortage all at once?
Not if it equals one month's payment or more. Federal rules then let the servicer spread it over at least 12 months or let it stand. Smaller shortages can be collected within 30 days, though you can ask about options.
Can I get rid of my escrow account?
It depends on your loan and lender. Some lenders and some laws require escrow, and some lenders charge a fee to waive it. Ask your servicer what applies to your loan.
Sources: CFPB, ocassessor.gov
General guidance for U.S. homes, not professional advice. For gas, electrical and structural work, call a licensed pro.