What Is an Escrow Surplus Check & What to Do With It?

An escrow surplus check represents funds returned to a homeowner from their mortgage escrow account. This occurs when the money held for property taxes and homeowner’s insurance exceeds the amount needed. It signifies that the homeowner has overpaid, and the excess funds are refunded.

Reasons for an Escrow Surplus

An escrow account accumulates a surplus for several reasons. Initial overpayments are a frequent cause, occurring when estimates for property taxes and insurance during escrow setup were higher than actual costs. This leads to excess funds building up.

Changes in property taxes can also create a surplus. If a property’s assessed value or local tax rate decreases, the amount collected for property taxes may exceed the new bill. Similarly, a decrease in homeowner’s insurance premiums, perhaps due to finding a more affordable provider or changes in policy coverage, can result in an overcollection.

A significant reason for an escrow surplus arises when a mortgage loan is paid off or refinanced. The original escrow account is closed, and any remaining balance is returned to the homeowner.

Receiving an Escrow Surplus Check

Homeowners receive an escrow surplus check as part of an annual review by their mortgage servicer. Lenders are required to analyze escrow accounts yearly to determine if a surplus or shortage exists. If the analysis reveals a surplus, Real Estate Settlement Procedures Act (RESPA) regulations mandate that lenders issue a refund.

For a surplus of $50 or more, the servicer must refund the amount within 30 days from the date of the analysis, provided the mortgage payment is current. If the surplus is less than $50, the servicer can either refund it or credit it towards the next year’s escrow payments. The check is mailed and often accompanied by an escrow analysis statement.

Reviewing Your Escrow Statement

Upon receiving an escrow surplus check, review the accompanying escrow analysis statement. This statement provides a detailed breakdown of your escrow account activity over the past 12 months and projections for the next 12 months. Key components include the initial balance, payments made, and disbursements for property taxes and homeowner’s insurance.

The statement indicates the surplus amount, allowing you to confirm it matches the check. It also projects future escrow payments based on anticipated tax and insurance costs. If discrepancies or questions arise regarding the statement or surplus amount, contact your lender for clarification.

Deciding What to Do with Your Check

Once an escrow surplus check is received, homeowners have several options for utilizing the funds. The most straightforward approach is to deposit the check into a bank account for personal expenses or savings goals.

Another option is to apply the surplus directly to your mortgage principal. This can reduce the outstanding loan balance, leading to lower interest paid over the life of the loan and a faster payoff. Contact your lender to facilitate this payment.

Some homeowners might consider holding onto the funds to cover potential future escrow shortages. However, this is less common, as the lender’s annual analysis usually adjusts for such possibilities.