If you own a home or have rental properties, you may have dealt with an annual escrow analysis. Most mortgages will have an escrow account that is used to pay important home-related expenses like property taxes, homeowners’ insurance, flood insurance and PMI. For lenders to know the right amount to collect from the borrowers for these bills, they perform what is called an annual escrow analysis.
Here is what you need to know when it comes time for your annual escrow analysis. Each year, your lender or mortgage service provider reviews your escrow account to make sure they are collecting the right amount for taxes and insurance. This is a requirement under RESPA’s Reg X, to ensure that lenders are not collecting too much or too little from their borrowers.
What the Analysis Checks
- For the past 12 months – what was paid out of your escrow account for taxes and insurance, and what was collected in escrow as part of your monthly mortgage payments.
- For the coming 12 months – what is expected to be paid out of your escrow for taxes and insurance, and what will need to be collected in escrow to be able to make those payments.
Whether your monthly escrow amount has a surplus and/or deficiency, or a shortage. This is based on any changes in your taxes or insurance.
How the Analysis Impacts Your Monthly Mortgage Payment
If your taxes or insurance increase, the escrow part of your payment may go up. This often also results in the escrow account having a shortage and/or deficiency. If your taxes or insurance decrease, the escrow part of your payment may go down. This may result in the escrow account having a surplus, which must be refunded to the borrower if greater than $50. If there has been little to no change in your taxes and insurance, your payment may not change at all. However, this is rare as taxes and insurance change often due to the unsteady market.
Shortages and Deficiencies
Shortages and deficiencies occur when taxes or insurance increase and there isn’t enough in the escrow account to cover them. If you have a shortage and/or deficiency, some lenders allow you to pay these amounts in a lump sum.
If you don’t pay one or both amounts by the deadline your lender assigns, they will be applied to your mortgage payment, typically over the course of the next 12 months.
It is important to note that a shortage and/or deficiency is separate from an escrow payment increase due to the increase of your taxes or insurance. Therefore, paying your shortage and/or deficiency does not guarantee that your monthly mortgage payment will not change.
When Annual Escrow Analysis is Performed
Some lenders perform annual escrow analysis on all of their mortgage loans at once, while others may perform analysis based on the date that you took out your mortgage. If you have a mortgage with Alltrust, our Loan Servicing team performs this analysis on all mortgages on or around June 1st with a payment change effective August 1st. The analysis is done in June because the fiscal year ends on June 30th for most of our cities and towns, and all real estate taxes due for the year have been paid. Most lenders mail their annual escrow analysis statements, so it is important to keep an eye on your mail around analysis time.
Preparing for Your Upcoming Payment Change
If you make your mortgage payment via bill pay or online banking, it is important that you verify your new payment amount and make any adjustments to ensure that you are sending the correct amount once your new payment takes effect.
If your payment has increased and you pay the wrong amount, you may be subject to late fees if the difference is not paid before the end of any grace period provided by your lender.
How You Can Help Maintain Your Escrow Account
There are steps you can take throughout the year to ensure that your escrow account always has enough funds to cover your taxes or insurance. Regular monitoring of your property tax bills, and insurance renewals can help you stay on top of any potential increases. If you do notice an increase, you may wish to deposit more funds into your escrow account to cover it.
If you do have any questions about your escrow account at any time of the year, don’t hesitate to call your lender or mortgage service provider.
If you want to know more about a topic, email media@alltrustcu.com.