Annual Escrow Analysis: Why Your Mortgage Payments May Have Changed - NerdWallet (2024)

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When you purchased your home, your monthly mortgage payment was likely a big consideration. You set a budget and shopped around for lenders to find a house and rate you could afford.

But now — surprise! Your payment has changed, even though your rate is the same. What happened?

The answer likely lies in your annual escrow analysis. Once a year, your lender reviews your escrow account to ensure that there’s enough money to cover your taxes and insurance premiums. If this number changes, so will the amount you’re required to pay.

While it can be frustrating to be told to pay more, these numbers aren’t up to your lender. It’s also possible for your taxes and insurance costs to decrease. If that happens, the amount that you’ll be required to pay each month will be less.

How does escrow work?

Typically, your monthly mortgage payment is four separate costs bundled into one. These include your principal balance, your interest, your property taxes and your insurance premium. The insurance premium includes your homeowners insurance and, if required, your private mortgage insurance (PMI). Your lender controls and keeps the payments toward your balance and interest, but it holds the tax and insurance payments in an escrow account to disperse on your behalf to their respective providers.

You’re required to keep a minimum amount in your escrow account to cover the full amount of your bill, which varies depending on where you live. If your lender finds that your account has more money than necessary in their annual analysis, they could send you a check for the difference. If the account is short, your monthly payment will be adjusted accordingly.

How to read your escrow analysis

Your lender is required to send you an account statement within 30 days of completing their analysis. This statement will include:

  • Your current monthly mortgage payment, including the amount that goes towards the escrow account.

  • The monthly payments you made in the past year and the portion that went into your escrow account.

  • The total amount paid into the escrow account in the past year.

  • The balance on the account at the end of the analyzed period, including how much was paid toward both taxes and insurance.

  • Details on what the lender will do with a surplus balance or how they’ll require a shortfall to be covered.

  • An outline of the difference between the previous required payment and the new payment.

Ways to lower your monthly mortgage payment

If your monthly mortgage payment is now higher than you’re comfortable with, you have a few options for lowering it.

  • Shop around for a new insurer. If your mortgage payment rose because of your homeowners insurance premium, you might get a better deal elsewhere. If you made improvements or renovations that improved the safety of the home, you may qualify for a reduced premium. However, you may have to pay a penalty if you cancel your policy before it expires.

  • Refinance or modify your mortgage. If you can refinance your mortgage to a lower interest rate, then you can lower your overall mortgage payment — potentially offsetting a larger escrow account balance requirement. You can also use refinancing or modification as a means of extending your loan term. This would give you more time to pay off your mortgage, lowering the amount you’re required to pay each month. However, you’ll end up paying more interest overall.

  • Get rid of private mortgage insurance. If you put down less than 20% when you purchased your home with a conventional mortgage but now have at least 20% equity, you can discuss dropping PMI with your lender. Remember, your equity goes beyond the mortgage payments you’ve made — if the house is now worth more than when you purchased it because of factors like appreciation or renovations to the home, that difference is included in your equity.

» MORE: How to lower your monthly mortgage payment

Who to contact for more information

If you have further questions about your escrow account or if you think that there’s an error in your analysis, you can contact your mortgage lender.

If your escrow account balance requirement has risen because your property taxes have increased, you can review the website for your state’s treasury or revenue department. You might be eligible for a property tax relief program. For example, Nebraska residents may receive tax relief if they’re over 65, a veteran or physically or mentally disabled.

If your homeowners insurance is the source of your larger escrow account balance requirement, you can contact your insurance provider and explore options for lowering your premium. This may involve increasing your deductible, bundling your home and auto insurance, or applying for discounts, among other strategies.

» MORE: How to calculate property taxes

Annual Escrow Analysis: Why Your Mortgage Payments May Have Changed - NerdWallet (2024)

FAQs

Why does escrow change my mortgage payment? ›

If your bank determines that there will not be sufficient funds in your mortgage escrow account, it may raise your payment by the amount of the shortage. The bank may offer you the choice to repay the amount in one lump sum or spread the payments over a 12-month period.

Why does my escrow analysis keep going up? ›

Your escrow payments, however, will likely vary on a yearly basis. An increase in your escrow payments could be due to tax and insurance rate fluctuations. Other events might increase your payments as well. For example, the value of your home may increase, pushing up your property tax bill.

What happens if I disagree with escrow analysis? ›

If you have further questions about your escrow account or if you think that there's an error in your analysis, you can contact your mortgage lender.

Can an escrow analysis be redone? ›

As noted, your escrow will be analyzed once every 12 months. An annual escrow analysis is normally sufficient. However, your lender or mortgage servicer will explain if you can expect an analysis more frequently.

How often can a mortgage company do an escrow analysis? ›

The lender must perform an escrow account analysis once a year and notify you of any shortage, or surplus. The lender can require that you pay the amount needed to correct a shortage. If the escrow account has a surplus of more than $50, the lender must return that amount to the borrower.

What is the annual escrow analysis? ›

Annual analysis

It includes a review of activity in your escrow account during the past 12 months, with projections for the next 12 months. This helps us determine the amount you need to pay into your escrow account each month, so we can pay your taxes and/or insurance expenses on your behalf for the next 12 months.

Why did my mortgage go up after escrow analysis? ›

Every year, after the taxes and insurance are paid, your lender performs an escrow analysis to see if the amount you're putting in each month will be enough to cover the bills next time. If your escrow account comes up short, an increase in your mortgage payment amount might occur to cover the expected shortage.

Why does my mortgage keep having an escrow shortage? ›

An escrow shortage happens when there's not enough funds to pay the property taxes and insurance. This usually happens when the cost of these items increase. If a shortage is found, the amount is evenly divided and added to the next 12 mortgage payments.

How do you fix escrow deficiency? ›

You can fix the escrow shortage by paying the entire shortage amount in one lump sum, spreading it out in payments over a year or doing a mix of both.

Can an escrow analysis be wrong? ›

Annual Escrow Account Analysis and Statement

Just as errors in the initial escrow analysis often cause errors in the initial escrow deposit, errors in the annual account analysis can also lead to incorrect calculations, which often result in incorrect surplus, shortage, or deficiency amounts.

Who is responsible for an escrow mistake? ›

This is a great question because there is a lot of onus placed on the buyer, even with an escrow account. While your loan servicer is the one responsible for handling your property tax and insurance payments, mistakes are made, and you are the one who will be held liable for the full, on-time payment.

Can something go wrong in escrow? ›

Something could go wrong at any step in the process that allows the buyer or seller to get out of the contract. Or the loan could fall through, leading to a canceled agreement. The escrow process is in place to protect both the buyer and the seller.

Why did my mortgage go up $400? ›

It's common to see monthly mortgage payments fluctuate throughout the life of your loan due to changes in your home value, taxes or insurance.

Why did my escrow go up $1000? ›

If your home value has risen since the prior year, the cost of your taxes and insurance will also increase. Thus, the entity that holds your mortgage will hike up your escrow to ensure your monthly payment can cover those higher bills.

How often can escrow change? ›

The escrow will adjust yearly to properly maintain funds in the account as the property taxes, homeowner's insurance premiums and other escrow related charges change.

Can I remove escrow from my mortgage? ›

If you can't afford to put 20% down when you take out the loan and don't want an escrow account, you might be able to cancel the account once you reach 20% equity in the home. In most cases, you also must have had the loan for at least a year and can't have any late payments during that time.

Will my mortgage payment go down if I pay escrow? ›

A decrease in your monthly escrow amount would end up decreasing your total monthly mortgage payment.

How do I avoid escrow on my mortgage? ›

Generally, when you take out a conventional loan, your lender will require an escrow account if you borrow more than 80% of the property's value. So, if you make a down payment of 20% or more, your lender will likely waive the escrow requirement if you request it.

How often does escrow adjust? ›

The escrow will adjust yearly to properly maintain funds in the account as the property taxes, homeowner's insurance premiums and other escrow related charges change.

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