An escrow analysis is a periodic review conducted by your mortgage servicer to ensure that the funds in your escrow account are sufficient to cover upcoming expenses such as property taxes, homeowners insurance, and other related costs.
The purpose of the analysis is to adjust your monthly escrow payments based on actual costs to avoid having too much or too little money in the account.
Key Aspects of Escrow Analysis:
Purpose:
The escrow account holds money that your mortgage servicer uses to pay property-related expenses, such as property taxes and insurance premiums, on your behalf.
The escrow analysis ensures there are enough funds to cover these costs when they are due.
Process:
The servicer reviews the current balance in your escrow account and compares it to the projected expenses for the upcoming year.
They check whether the monthly payments you’ve been making for escrow are adequate to cover expected disbursements (such as tax bills and insurance premiums).
Outcomes of Escrow Analysis:
Escrow Shortage:
If the analysis shows there are not enough funds to cover expected expenses, you have a shortage.
You’ll need to make up the shortfall, either by paying it as a lump sum or spreading it out over future payments.
Escrow Surplus:
If there are more funds in the account than needed, you have a surplus.
You may receive a refund or have the surplus applied to reduce future monthly payments.
Payment Adjustment:
Based on the analysis, your monthly escrow payment may be adjusted up or down to match the anticipated expenses.
Frequency:
Escrow analyses are typically conducted annually, though they can be performed more frequently if there are significant changes in costs, such as an increase in property taxes or insurance premiums.
Why It’s Important:
Escrow analysis helps keep your payments accurate and ensures that your escrow account has enough funds to pay taxes and insurance on time. Here Escrow analysis schedule by state.
It prevents large unexpected bills and adjusts your monthly mortgage payment to reflect real costs.
Example:
If your property taxes increase, the escrow analysis will detect that your current monthly escrow payment isn’t enough to cover the new higher amount.
The servicer will adjust your payment to reflect the increase and may notify you of a shortage in the account.
Conversely, if your taxes or insurance costs decrease, you could have a surplus, resulting in a lower monthly payment.
Escrow analysis helps homeowners avoid big financial surprises by ensuring their property-related expenses are managed throughout the year.