An escrow analysis is an annual process done on an escrow account set up by the lenders when you get a mortgage to purchase, refinance, or build a home. The escrow account is used to pay property taxes and insurance premiums on a property on your behalf.
It will determine the adjustment made on your monthly escrow payment which is a direct result for when property tax and homeowners insurance rates change. The analysis ensures that you are not paying too much or too little into escrow.
Focus Areas of an Escrow Analysis
- Amount of tax and insurance
- Escrow account balance, minimum required balance, and amount of monthly payment
- Recent insurance and tax payments made with escrowed funds
Impact of Escrow Analysis on Monthly Payments
The monthly payment can increase or decrease, depending on the result of an escrow analysis. As previously mentioned, changes in your monthly payments can occur due to your tax and insurance amount. If the amount goes up, the more you need to put in your escrow account and vice versa.
What does shortage and surplus of an escrow account mean?
A shortage is when your upcoming tax and insurance payments have increased, requiring you to put in extra funds in addition to the increased amount of your monthly payment.
A surplus means that your escrow account has more funds to pay for upcoming tax and insurance payments. If the surplus is big enough, your escrow analysis may come with a check for the extra funds.