What Is an Escrow Statement and How Do You Read It?
Demystify your annual mortgage escrow statement. Understand its purpose, contents, and how to interpret it for informed financial decisions.
An escrow statement is an annual summary of the financial activity within a homeowner’s escrow account. It details all funds collected and disbursed for property-related expenses. For homeowners with a mortgage, understanding this statement is crucial for managing housing costs and ensuring transparency in how their monthly payment is allocated.
Purpose and Contents of an Escrow Statement
An escrow statement provides homeowners a clear, yearly account of their escrow activity, ensuring transparency in how their funds are managed. Mortgage servicers provide this statement to show the collection and disbursement of funds for property taxes and insurance premiums. This annual review helps adjust future mortgage payments to align with actual tax and insurance costs for the upcoming year.
An escrow statement typically covers a 12-month analysis period, reflecting the prior year’s activity. It details the beginning and ending balances of the escrow account. The statement itemizes all payments received, which represent the portion of the homeowner’s monthly mortgage payment designated for escrow. These collected funds are held in a non-interest-bearing account by the mortgage servicer.
The statement outlines all disbursements made from the account. This includes payments for property taxes to local taxing authorities and homeowner’s insurance premiums to the insurance carrier. If applicable, it also shows disbursements for mortgage insurance premiums, such as private mortgage insurance (PMI) or FHA mortgage insurance premiums (MIP). Each disbursement is listed with its date and amount.
How to Read Your Escrow Statement
Interpreting your escrow statement involves understanding how the various components contribute to your account’s health and future mortgage payments. The statement presents a projected balance, forecasting the account’s status over the next 12 months based on anticipated tax and insurance costs. This projection considers the current balance, expected monthly contributions, and known future disbursements.
Identify if your escrow account has a “shortage” or a “surplus.” A shortage occurs when actual disbursements for taxes and insurance were higher than collected amounts, or if projected costs exceed the current balance and anticipated contributions. Conversely, a surplus means more funds were collected than disbursed, or the projected balance is higher than the minimum required cushion, which typically allows for a two-month reserve of escrow payments.
Changes in property taxes or insurance premiums directly reflect in the escrow portion of your mortgage payment. Increased property value or insurance premiums necessitate a higher monthly escrow contribution. Cross-reference disbursement amounts on your statement with actual property tax bills and insurance declarations to verify accuracy. Understanding these adjustments helps homeowners anticipate changes to their overall monthly mortgage obligation.
Responding to Your Escrow Statement
Retain your escrow statement for financial records, as it serves as official documentation of your property-related expenses. Carefully review it for any discrepancies or errors, comparing listed tax payments against local property tax assessments and insurance premiums against policy declarations. If you identify an error, such as an incorrect tax amount or missing payment, prompt action is necessary.
To address a discrepancy, contact your mortgage servicer immediately. Be prepared to provide your account number and any supporting documentation, such as the correct tax bill or insurance declaration page. The servicer can investigate and make necessary adjustments to your escrow account. If the error pertains to the tax amount or insurance policy, you may also need to contact the relevant tax assessor’s office or insurance company to clarify the information.
If facing an escrow shortage, your mortgage servicer typically offers options to cover the deficit. You can pay the shortage in a lump sum or spread it out by increasing your monthly mortgage payment over a 12-month period. For an escrow surplus exceeding a certain threshold, often $50 or more, the servicer typically refunds the excess amount within 30 days.