To put it simply, your escrow account is a built-in savings account that covers property taxes and homeowners insurance. Your mortgage servicer collects a portion of these costs with your monthly payment and pays them on your behalf. This system helps homeowners avoid large lump-sum bills—but it’s important to review your escrow balance annually, especially around tax season.

Why You Might Have an Escrow Shortage or Overage

Property taxes and insurance costs change from year to year. If your taxes increase and your escrow account doesn’t have enough to cover the difference, you’ll have a shortage. On the other hand, if taxes decrease or your lender overestimated costs, you may have an overage, which could result in a refund.

Lenders analyze escrow accounts annually to adjust your monthly payments based on new tax and insurance rates. That’s why tax season is the best time to check your escrow balance and anticipate any changes.

What to Do if You Have a Shortage

If your escrow account is short, you have two options:

  1. Pay the Shortage in Full – This keeps your monthly mortgage payment lower since you’re covering the difference upfront.

    • Pros of Paying in Full:
      ✔ Avoids an increase in your mortgage payment.
      ✔ Keeps your budget predictable for the year.

    • Cons of Paying in Full:
      ✘ Requires a lump sum payment, which might strain your finances.

  2. Spread the Shortage Over 12 Months – Your lender will divide the owed amount across the next year, increasing your monthly mortgage payment.

    • Cons of Spreading the Shortage:
      ✘ Your monthly mortgage payment will be higher for the next year.
      ✘ You might still owe more if tax rates rise again next year.

If you have any questions about your account, we’d love to help. There’s no question too small for our team!