Changes in property tax assessment or a homeowners' insurance premium can cause an escrow account balance to fluctuate. Homeowners who overpaid into the account or experience decreased taxes or insurance charges may receive a refund after an escrow analysis. However, homeowners who underpaid escrow or received a higher tax or insurance bill may end up with an escrow shortage, which is a situation that must be remedied.
Formally known as the annual escrow account disclosure statement, an escrow analysis shows you whether your account has a balance or shortage. It also states the new amount of your mortgage payment and the reasons for any surplus or shortfall in the account.
Reason for Reviewing Escrow Analysis
Bills other than homeowners' insurance and property taxes show up on the escrow analysis, such as private mortgage insurance and hazard or flood insurance if you have it. An escrow account, also known as impounds, allows the lender or loan servicing company that handles your mortgage payments to remit these ancillary housing costs on your behalf. Homeowners don't have to save up to cover taxes and insurance when they come due. Rather, they remit a portion (approximately 1/12) of it each month along with the mortgage. The lender maintains the funds in the escrow account until they are due, and then they disburse payment to the tax collector and insurance provider. Your lender must render an accounting to you each year to disclose disbursement and provide a projection of account activity for the following year.
What the Form Looks Like
Each lender formats their form differently, but all must include a minimum amount of detail regarding your escrow account. The Department of Housing and Urban Development oversees the regulations that govern escrow accounts and disclosures. Therefore, all escrow analysis statements contain the same essential information.
Basic Details and Payment Information
First, you will see the statement date, mortgage loan number, the start and end date for the escrow analysis period and your current mortgage payment breakdown. The payment information breaks your mortgage payment down by principal, interest and the monthly amount you currently deposit into escrow. The next portion of payment information shows the projected payments. For example, if you have a surplus, your payment may remain the same, and you are due a refund. If you have an escrow shortage, your projected payment will be higher. The statement also shows the start payment for the new escrow period.
Account Activity Schedule
The escrow analysis also itemizes the payments collected and disbursed month by month for the previous year and the projected year. This visual labels when the lender mailed payment to the tax assessor or insurer. Taxes are typically disbursed two times a year, while insurance premiums are paid once a year. The schedule also contains a threshold known as the required low point balance or required escrow lowest balance. Whatever the variation on the name may be, this figure indicates the lowest amount that your account balance can hit, and it's listed right after the final bill is paid for the 12-month period.
About Escrow Shortage
Your lender can help you to review your escrow analysis, but you'll have to take up tax increases with your local tax assessor and hikes in your insurance premium with your insurance provider directly. The lender and your escrow account have no bearing on the rise and fall of property taxes and premiums. The lender can impose force-placed insurance if you fall behind on your mortgage or escrow payments. Force-placed insurance policies are chosen by your lender and are often higher than if you shop for the insurance on your own. Expect your escrow payments to increase sharply if you fall behind on your monthly mortgage payments. This shortage will also be reflected in the escrow analysis.
- Your lender might pay you interest on your escrow but isn't required to do so.
- Lenders can require you to keep a cushion amount in your escrow account under federal law. The escrow balance can't go under the cushion, which is typically two months' worth of escrow payments, during the year.
Karina C. Hernandez is a real estate agent in San Diego with a background in mortgage origination. She has been licensed since 2004 and received a B.A. in English from UCLA. Karina has written on a variety of financial topics, including credit, real estate finance, insurance and taxes for online channels such as eHow, sfGate, the nest, Quicken, TurboTax, RE/Max, Zacks and Opposing Views.