How to Fight an Escrow Increase on Your Mortgage

An escrow account, managed by your mortgage servicer, holds funds from your monthly mortgage payment to cover property taxes and homeowners insurance premiums. This arrangement ensures these recurring costs are paid on time, reducing the burden of large, infrequent payments for homeowners. An increase in the amount required for this account can lead to a higher overall monthly mortgage payment, impacting a household’s budget.

Understanding Escrow Account Increases

An escrow account simplifies the management of property taxes and homeowners insurance, which are two primary components of homeownership costs. Each month, a portion of your mortgage payment is deposited into this account. When property tax bills or insurance premiums become due, the mortgage servicer disburses the necessary funds from your escrow account on your behalf. This system ensures timely payments and protects the lender’s interest in the property by preventing tax liens or lapses in insurance coverage.

Escrow account increases often stem from changes in these underlying expenses. Property taxes are assessed by local government entities and can fluctuate based on reassessments of your property’s value or changes in the local tax rate. If your home’s assessed value increases, or if the local taxing authority raises its millage rate, the amount required for property taxes will rise.

Homeowners insurance premiums also contribute significantly to escrow balances and can increase for various reasons. Inflationary pressures affecting rebuilding costs, an increase in perceived risk in your area, or even changes to your policy coverage can lead to higher premiums. Insurers may also adjust rates across the board following widespread natural disasters or an increase in claims.

Another common reason for an escrow increase is an escrow shortage from a prior year. Mortgage servicers conduct an annual escrow analysis to review the actual expenses paid out versus the amounts collected. If the actual tax or insurance costs were higher than estimated, resulting in a deficit, this shortage is typically spread out and added to your monthly escrow payments for the subsequent 12 months. This adjustment aims to replenish the account and build a sufficient cushion, often equivalent to two months of escrow payments, to prevent future shortfalls.

Reviewing Your Escrow Account Details

Understanding the specific reasons behind an escrow increase begins with a thorough review of your mortgage and property-related documents. The annual escrow analysis statement provided by your mortgage servicer is the primary document to examine. This statement details the projected disbursements for property taxes and insurance for the upcoming year, compares them to the previous year’s actuals, and calculates any shortage or surplus in your account.

Look for a breakdown of your current and projected monthly payments, including the principal, interest, and escrow portions. The statement should also show the payments made into your escrow account over the past year and the disbursements made for taxes and insurance. Pay close attention to the estimated amounts for the coming year, as these directly influence your new monthly escrow payment. If a shortage is indicated, the statement will specify the amount and how it will be collected, typically over the next 12 months.

Next, obtain your most recent property tax bill from your local tax assessor’s office. This document provides critical details such as the assessed value of your property, the applicable tax rates, and any exemptions applied. Compare the assessed value and tax rate on your bill with the amounts used in your escrow analysis statement. Verify that your property information, including the address and parcel number, is accurate.

Finally, review your homeowners insurance policy declaration page. This document summarizes your insurance coverage, including the policy number, effective and expiration dates, coverage limits for dwelling and personal property, deductibles, and the annual premium. Ensure the premium amount listed on your declaration page matches the figure used by your mortgage servicer in the escrow analysis. Any discrepancies in these documents could indicate an error contributing to your escrow increase.

Actionable Strategies to Address Increases

Once you have meticulously reviewed your escrow analysis, property tax bill, and insurance declaration page, you can take specific steps to address an escrow increase. Begin by contacting your mortgage servicer directly. Prepare to discuss your account by having all your documents readily available, including your escrow analysis statement, property tax bill, and insurance policy. Ask for a detailed explanation of the increase and inquire if any errors were made in their calculations or if outdated information was used.

Appealing Property Tax Assessments

If your review indicates a discrepancy in the property tax assessment used by your servicer, you may need to appeal your property tax assessment with your local tax assessor’s office. This process typically involves contacting the assessor’s office, often informally first, to discuss the assessment and request a review. If an informal resolution is not possible, you will need to file a formal written complaint or appeal form within a specified timeframe. You will need to provide evidence supporting a lower valuation, which could include recent appraisals, photographs of your property, and sales data for comparable properties in your neighborhood.

Shopping for Homeowners Insurance

If the increase is due to a rise in your homeowners insurance premium, shopping for a new policy is a viable option. Obtain quotes from multiple insurance providers to compare coverage and pricing. You can typically shop for new insurance without impacting your existing escrow account. When you find a more affordable policy, your new insurance company can often assist with the transition. Send the new policy’s declaration page, which includes the policy number, effective dates, and premium, to your mortgage servicer promptly. The servicer will then update your escrow account to reflect the new premium.

Addressing Escrow Shortages

In cases where an escrow shortage contributes to the increase, you have the option to make a lump-sum payment to cover the deficit. This voluntary payment can prevent the shortage amount from being spread across your monthly mortgage payments for the next 12 months, thereby keeping your regular payment lower. Contact your mortgage servicer to determine the exact amount needed to clear the shortage and confirm the procedure for making such a payment. This payment addresses the existing shortage but does not prevent future increases if tax or insurance costs continue to rise.