How to Calculate Your Escrow Refund Amount
Learn to accurately calculate your mortgage escrow refund. Understand how to determine if you have an overpayment and the exact amount you're due.
An escrow refund occurs when funds in your mortgage escrow account exceed the amount needed for property taxes and homeowners insurance premiums. This overpayment creates a surplus your mortgage servicer is typically required to return. Understanding the factors that contribute to this surplus helps determine eligibility for a refund.
Understanding Escrow Account Components
A mortgage escrow account is managed by your loan servicer to ensure property taxes and homeowners insurance premiums are paid on time. Each month, a portion of your mortgage payment is allocated to this account.
The amount collected is an estimate based on the previous year’s tax assessments and insurance premiums. Your lender calculates an anticipated annual total for these expenses, then divides that sum by twelve to determine your monthly escrow contribution. This system helps homeowners budget for large, infrequent payments and provides assurance to the lender that these obligations are met.
Causes of an Escrow Overpayment
Several scenarios can lead to an overpayment in your escrow account, resulting in a potential refund. One common cause is a decrease in your property tax assessment, which can occur due to a general decline in property values in your area, a successful appeal of your property’s assessed value, or a change in local tax rates.
Another reason for an escrow surplus is a reduction in your homeowners insurance premiums. Insurance costs can decrease if you switch to a more affordable policy, make home improvements that reduce risk (like installing a new roof or security system), or if the overall risk profile of your area improves. Additionally, paying off your mortgage loan or refinancing it can trigger a full reconciliation of your escrow account, often revealing a surplus. When a loan is paid off, the escrow account is closed, and any remaining balance is returned to the homeowner.
Information Needed for Calculation
To determine your potential escrow refund amount, gather specific documents. The most recent annual escrow analysis statement from your mortgage lender provides a detailed breakdown of all transactions within your escrow account over the past year, showing the total amounts collected from you and the total disbursements made for taxes and insurance.
You should also collect your current and, if applicable, previous years’ property tax bills. Homeowners insurance premium notices are important, as they detail the precise cost of your insurance coverage. If your mortgage loan was paid off or refinanced, a mortgage payoff statement will confirm the loan’s closure and any final adjustments.
Steps to Determine Your Refund Amount
Calculating your escrow refund involves reconciling the funds collected versus the amounts disbursed. Begin by reviewing your annual escrow analysis statement to identify the total amount your lender collected from you for property taxes and homeowners insurance over the past year. This figure represents the money you contributed to the escrow account through your monthly mortgage payments.
Next, identify the total amount actually disbursed from your escrow account for these expenses during the same period. Subtract the total amount disbursed from the total amount collected to determine the gross surplus in your account.
Consider any minimum balance your lender is permitted to hold in the escrow account. Regulations typically allow lenders to maintain a cushion, often up to two months of your total monthly escrow payment, to cover unexpected increases in taxes or insurance. This cushion is designed to prevent an escrow shortage, which would require an increase in your monthly payment or a lump-sum payment from you. Subtract this allowable minimum balance from your gross surplus. The remaining amount is your eligible escrow refund.