Escrow Analysis

Escrow analysis is the periodic examination a mortgage servicer performs on a borrower's escrow account to verify that the monthly deposits being collected are sufficient to pay upcoming property taxes, homeowners insurance and other escrow-related items as they fall due. Because tax and insurance bills can change year to year, the servicer recalculates the required monthly deposit at each analysis to keep the account properly funded going forward.

Most mortgage servicing agreements require an escrow analysis at least once a year, with the borrower receiving a statement showing the account's activity, projected upcoming disbursements, and any resulting adjustment to the monthly escrow payment.

Your lender collects a slice of property tax and insurance cost with every mortgage payment, holds it in an escrow account, and pays the actual tax and insurance bills on your behalf when they come due. Escrow analysis is simply the lender checking the math once a year — did it collect enough, too much, or not quite enough — and adjusting your monthly payment accordingly for the year ahead.

A sudden jump in property taxes or insurance premiums is a common reason a mortgage payment can rise even though the loan's own interest rate and principal payment have not changed at all.

If the analysis finds the account held too little to cover actual disbursements, the servicer typically either requires a lump-sum payment to cover the shortage, spreads the shortage over the coming year's payments, or both; if the account held more than needed, a surplus above a regulatory threshold is often refunded directly to the borrower.

Regulations in several countries, including requirements tied to the Real Estate Settlement Procedures Act in the United States, govern how escrow accounts must be analyzed, limit how large a cushion a servicer may hold above projected disbursements, and require clear disclosure of the analysis results to the borrower.

A borrower who believes an escrow analysis is incorrect — for instance, if it anticipates a tax increase that did not actually occur — generally has the right to request a review or correction from the servicer, which should adjust the account and future payments accordingly if an error is confirmed.

Regulations in several countries cap the maximum cushion a servicer may hold in an escrow account above projected annual disbursements, commonly limiting it to roughly two months' worth of escrow payments, specifically to prevent servicers from systematically over-collecting and effectively holding borrowers' money longer than genuinely necessary to cover upcoming bills.

A property reassessment that significantly raises or lowers the assessed value can trigger an unusually large escrow analysis adjustment outside the normal annual cycle, since the resulting change in the actual tax bill may be substantial enough that waiting for the next scheduled analysis would leave the account meaningfully under- or over-funded in the meantime.

A homeowner who successfully appeals a property tax assessment and secures a lower bill should notify their servicer promptly, since the servicer's escrow analysis is based on the most recent tax information it has on file, and a successful appeal that is not properly reported can leave the servicer continuing to collect based on the higher, now-outdated figure.

Regulations in several countries require a servicer to deliver the results of an escrow analysis to the borrower within a defined period, commonly 30 days after completing the analysis, giving the borrower adequate advance notice before any resulting change to the monthly payment actually takes effect.

A newly originated mortgage typically has its initial escrow deposit and monthly contribution set based on estimated, rather than actual, tax and insurance figures, meaning the very first escrow analysis performed after a loan closes often produces a more noticeable adjustment than later annual analyses once actual billing history has been established.