The world would be a simpler place if houseplants watered themselves. It would be a much simpler place if property tax and homeowner’s insurance rates never changed.
But they do change, and that means sometimes we need to adjust your monthly escrow payment. This is how we make sure you are not paying too much (or too little) into escrow.
So at least once a year, we run an escrow analysis on your account. The analysis focuses on three areas:
- Your tax and insurance amount.
- Your escrow account balance, monthly payment amount, and minimum required balance.
- The recent tax and insurance payments (AKA “disbursements”) we’ve made with your escrow funds.
We look it all over and send you a statement with the results. Usually your statement will inform you that your monthly payment is going up or going down in the year ahead. Your account may also end up with a shortage (too little in your account) or a surplus (too much).
Read on to learn more about how an escrow analysis works and what it means for you.
WHEN WILL YOU ANALYZE MY ACCOUNT?
WHAT KIND OF IMPACT DOES AN ANALYSIS HAVE ON MY PAYMENT?
An escrow analysis can lead to raising or lowering your monthly escrow payment. It can also show if you have a surplus in your escrow account or a shortage. We’ll explain more about that in a moment.
Any changes in your monthly payment will most likely be due to changes in your tax and insurance amount. If your amount goes up, you’ll need to put more into your escrow account each month. If it goes down, you can put in less.
Not too complicated, right?
SURPLUS & SHORTAGE
Your escrow analysis may bring news of a shortage or a surplus in your account.
A shortage means we’re anticipating needing extra money in your account to cover your upcoming tax and insurance payments. So we’ll need you to put in some extra funds in addition to any increase in your monthly payment.
Don’t worry, shortages are common and they’re not a reflection on you in any way. Nor do they affect your credit rating. They usually just mean your tax or insurance amount have increased since your last analysis.
A surplus means there’s probably more in your account than we’ll need. Depending on how big the surplus is, you might find a check for the surplus amount attached to your analysis.
HOW DO I FIGURE OUT IF I HAVE A SHORTAGE OR SURPLUS?
Here's the short version:
If your escrow account’s lowest projected balance in the year ahead is less than your minimum required balance, you have a shortage.
If it’s more than your minimum required balance, you have a surplus.
OK… WHAT DOES THAT ALL MEAN?
Great question. Let’s break it down.
Your escrow analysis projects the next twelve months of cash flow in and out of your account.
On your analysis statement, you’ll see a month-by-month projection of your upcoming escrow contributions. You’ll also see the timing and amount of upcoming disbursements we expect to make on your behalf.
Seeing what’s going to flow in and out of your escrow account allows us to project what its balance will be at the end of each month.
Remember your minimum required balance? (That’s your monthly escrow payment amount, doubled.) The goal of all this analysis is to be sure your account balance never drops below that amount.
So we compare your lowest projected end-of-month balance to your minimum required amount, and voila! If your lowest projected balance is less than your minimum required balance, the difference is your shortage amount. If it’s more than your minimum required balance, the difference is your surplus.
And if it’s exactly the same, well… then nothing happens. Hopefully this explanation was helpful anyway.
CAN I GET AN EXAMPLE?
Let’s say your minimum required balance is $600.
If your analysis projects that your lowest end-of-month escrow balance in the year ahead will be $350, you have a shortage of $250. Typically, you will have the option of paying the shortage in twelve monthly installments.
If you have a $600 minimum required balance and your analysis projects that your lowest end-of-month balance will be $800, you have a surplus of $200.
If you have a surplus of more than $50 and your account is current, we’ll attach a check for your surplus amount to your escrow analysis statement. If it’s less than $50, it’ll stay in your account and we’ll use it for future disbursements.
The word escrow derives from the Old French word "escroue", meaning a scrap of paper or scroll of parchment; this indicated the deed that a third party held until a transaction was completed.
STILL HAVE QUESTIONS?
Give us a call! Our lending team is ready for your questions and happy to help!
Toll Free: 1-877-653-8900