How to Read and Understand Your Escrow Statement

An escrow statement serves as a periodic summary detailing the activity within your mortgage escrow account, providing a comprehensive overview of how funds are collected and disbursed on your behalf. Understanding this statement is important for managing the costs associated with homeownership.

Understanding Escrow Account Basics

An escrow account is established by a mortgage lender to collect and hold funds for specific property-related expenses, including property taxes and homeowner’s insurance premiums. The funds for this account are collected as a portion of your regular monthly mortgage payment.

Your mortgage servicer is responsible for managing this account, ensuring that these bills are paid on time. This system helps homeowners avoid the burden of saving for large, infrequent payments and prevents potential penalties for missed tax or insurance due dates.

Components of an Escrow Statement

The statement begins with a beginning balance, which represents the total amount of funds remaining in the escrow account from the previous statement period.

Following the beginning balance, the statement will list deposits or credits. These consist of the portion of your monthly mortgage payments allocated to the escrow account.

The statement then details disbursements or debits. These commonly include payments for property taxes, homeowner’s insurance premiums, and sometimes private mortgage insurance (PMI). Each disbursement will typically be itemized, showing the date, the payee (e.g., your county tax assessor or insurance company), and the amount paid.

After accounting for all deposits and disbursements, the statement will present the ending balance. This figure indicates the total amount of funds remaining in your escrow account at the close of the statement period. The ending balance is calculated by adding deposits to the beginning balance and then subtracting all disbursements.

Many statements also include a transaction history or activity detail. This detailed ledger allows homeowners to track every transaction individually. Additionally, some statements may feature a section for projected activity, offering a look ahead at anticipated future payments for taxes and insurance.

Interpreting Escrow Projections and Adjustments

Mortgage servicers conduct an annual escrow analysis to ensure that enough funds are being collected to cover anticipated property taxes and insurance premiums for the upcoming year. This analysis compares the actual expenses paid from your escrow account over the past year with the amounts collected, and then projects future costs.

As part of this analysis, the servicer estimates projected payments for taxes and insurance. These estimates are based on the previous year’s actual payments and any known changes in tax rates or insurance premiums. Federal regulations permit lenders to maintain an escrow cushion or reserve. This cushion is typically limited to one-sixth of the estimated total annual disbursements, which equates to approximately two months’ worth of payments, designed to cover unexpected increases or timing differences in bills.

The annual analysis can result in a surplus, shortage, or deficiency. A surplus occurs when you have paid more into your escrow account than needed. If the surplus is $50 or more, the servicer is generally required to refund the excess amount to you, while smaller surpluses may be credited towards the next year’s payments.

A shortage indicates that your account has less than the required cushion, meaning that while the account may not be negative, it does not have enough buffer. A deficiency means your escrow account has a negative balance, indicating that the servicer advanced funds to cover payments when your account ran out. For both shortages and deficiencies, servicers typically offer options to repay the amount, such as a lump sum payment or spreading the repayment over a 12-month period, which will increase your monthly escrow payment.

The results of this annual analysis directly lead to adjustments in your monthly mortgage payment for the upcoming year. If a shortage or deficiency is identified, your monthly payment will increase to cover the shortfall and adequately fund the account going forward. Conversely, a surplus can lead to a decrease in your monthly payment.

Reviewing Your Statement for Accuracy

After receiving your escrow statement, carefully review its contents to ensure accuracy. Begin by verifying basic information such as your property address, loan number, and homeowner’s name. Confirming these details helps ensure the statement pertains to your specific account.

Cross-reference the disbursements listed on the statement with your own records for property tax bills and insurance policy declarations. Pay close attention to the dates and amounts paid to confirm they align with your expected payments. This comparison can help identify any discrepancies, such as missing payments or incorrect amounts.

Understand any changes to your monthly escrow payment by linking them back to the annual analysis section of the statement. If the payment has increased, confirm that the reasons provided, such as higher taxes or insurance premiums, are consistent with information you have received from taxing authorities or insurance providers.

If you identify potential errors, such as a payment not being credited or an incorrect disbursement, gather all supporting documentation. Contact your mortgage servicer promptly to dispute the error or request clarification. Federal regulations provide a process for consumers to dispute errors by sending a “notice of error” to their servicer. The servicer is then required to investigate and respond within a specified timeframe.