Escrow Account
Learn more about your escrow account, how your escrow payment is calculated and why an escrow analysis is performed on your mortgage account each year.
An escrow account (also referred to as impound or trust account) is an account for paying your property taxes and insurance premiums and for any other charges. Watch our video to learn more.
An estimated amount, based on the previous year’s payments and an adjustment for inflation, is divided by 12 and added to your mortgage payment.
Your monthly escrow payment could change. If your property tax payment or insurance premiums change then your escrow payment will also change.
An escrow cushion (also referred to as a reserve or target balance) is collected to cover any unanticipated disbursements or payment increases. The cushion amount may be 0-2 months of escrow payments based on federal and state guidelines and your loan documents.
An escrow analysis is a yearly review of your escrow account to ensure the correct amount is being collected to cover your property taxes, homeowners insurance, and the required cushion. This review looks at both the actual activity from the past year and the projected expenses for the upcoming year.
You will receive a detailed statement by mail, along with an escrow video sent to your email that explains the breakdown of your escrow account, similar to the example shown here:
An escrow analysis is conducted to project deposits and expenses for the next 12 months. If at any time your projected escrow balance is less than the allowable cushion then a shortage will exist. If at any time the projected escrow balance is greater than the allowable cushion then a surplus will exist.
If a shortage exists, the shortage amount is typically spread over 12 months and is added to the projected monthly escrow payment. If you choose to pay off the total shortage your monthly payment could still increase due to increases in taxes and insurance premiums.
If you have a surplus of less than $50.00, the amount will remain in your escrow account and be used to decrease your monthly escrow payments. If the surplus is $50.00 or more, you will receive a refund check, unless state regulations require otherwise or your loan is currently delinquent. In the case of a delinquent loan, please contact us to discuss available options for handling the surplus.
According to RESPA guidelines, any surplus pf $50.00 or more must be refunded to the borrower, unless state regulations require otherwise.
By law, a small reserve (also called a cushion) may be collected to cover any unexpected changes in escrow payments. The cushion may be 0-2 months of escrow payments.
If you have set up automatic payments through ACH, then the amount taken from your account will be adjusted to cover any decrease or increase starting on the effective date of the new payment. If you have set up automatic payments through your financial institution’s bill pay service, you will have to adjust future payments to the new amount due.