Understanding Annual Escrow Changes and Your Mortgage Payment

An escrow account is set up by your mortgage servicer to cover certain property-related expenses, like your property taxes, homeowner’s insurance premiums, and other charges related to your loan. Part of your monthly mortgage payment goes into this account over the course of the year. How mortgage lenders handle escrow accounts is regulated by a federal agency called the Consumer Financial Protection Bureau (CFPB).

Why are you being contacted about your escrow account?

Every year, lenders who service mortgage loans have to conduct an analysis of escrow accounts — and the CFPB mandates that every servicer must use the same method in analyzing escrow accounts. This analysis is done to ensure enough funds are collected by borrowers to pay upcoming insurance premiums, property taxes and fees. The borrower is then sent details about this annual review, and any resulting changes to their monthly escrow payment for the upcoming 12 months. Big changes in property values affect state taxes, which can result in more significant changes to your escrow payments.

How does your escrow analysis affect you?

Mortgage lenders require a minimum account balance – also known as a “cushion” – in escrow. These reserve funds are meant to cover unanticipated charges.

Every year, lenders compare expected escrow account disbursements over the coming 12 months to show a projected escrow balance for this period of time. Through this process, lenders identify whether your escrow account has a projected surplus or shortage, based on your projected account balance and the amount of required cushion.

If your escrow account is found to have a shortage, that means your current balance falls short of the target for the coming 12 months. There are a few options your loan servicer has for handling shortages, such as requiring the borrower to repay the shortage amount in equal monthly payments over at least a 12-month period.

A surplus is when your escrow analysis shows more in your cushion than is necessary. In this case, you are owed a refund from your loan servicer within 30 days of your escrow analysis if the surplus is $50.00 or more. If the surplus is less than $50.00, your servicer can either refund the amount or apply it to your next year’s escrow payments.

What you’ll see in the analysis

• Your current monthly mortgage payment and the part of the monthly payment going into the escrow account
• Amount of the past year’s monthly mortgage payment and portion that went into escrow
• Total amount paid into escrow during the past year
• Total amount paid out of your escrow account during the past year for taxes, insurance premiums and other charges
• Balance in the escrow account at the end of the period
• Explanation of how any surplus or shortage is being managed by the servicer or is to be paid by the borrower

Still have questions about your escrow account? Give us a shout to be connected to Sente’s Servicing Department!