Escrow Analysis And Rebalance
If you currently have a mortgage AND have an Escrow Account then this page may be applicable to you. You may also want to check out our page on New Construction Escrows if you bought (or are buying) a newly constructed home.
Cushion and Reserves
An escrow account does include a cushion (or reserves) to account for any increases in your taxes and insurance that may occur over time. Every year your mortgage servicer will conduct an Escrow Analysis to monitor this cushion and will adjust your monthly payment accordingly to ensure that they will have enough funds in the escrow account to pay for the full property tax bill and annual insurance premium. (Note: your monthly payment will only change as it relates to taxes and insurance; none of the terms of loan such as interest rate, loan amount, etc. can be modified). Escrow accounts are regulated by the government so by law an escrow account is only allowed to contain a certain amount of cushion. Despite the 3 months of taxes and insurance collected at closing, an escrow account typically has about 1 month of “cushion” for both your taxes and insurance.
Every year, typically around February, mortgage servicers conduct an escrow analysis to ensure that your escrow account is adequately funded. Escrow accounts are regulated by the Federal Government and mortgage servicers are only allowed to collect a certain amount of reserves. The escrow analysis will determine if there is a surplus or shortage in your account and mortgage services will then adjust your monthly payment accordingly. (Note: the loan’s terms – such as interest rate, loan duration, P&I payments, etc. – cannot be altered.
We pride ourselves on educating our clients and ensuring that they know what to expect before, during, and after the loan process. Please feel free to call us if you have any questions about your escrow account – even if we didn’t originate the mortgage. We’re here to help.
PS. We have heard of instances where a refund is issued by a Mortgage Servicer in error AND even when the client tried to give back the money the bank wouldn’t accept it, only to then have the bank request the money back a number of months later.