What goes in
One twelfth of the annual property tax and one twelfth of the hazard premium, collected with every payment. Mortgage insurance, flood insurance and any special assessment ride in the same account.
Escrow, explained properly
Your escrow account, and the analysis that moves your payment
A fixed rate does not mean a fixed payment. Once a year your servicer projects the account forward, finds its low point and adjusts. Here is the arithmetic, with your own numbers.
Run it on your own figures
Project the year and find the low point
Enter the annual tax bill, the hazard premium and the balance your servicer is holding. The ledger below rebuilds itself as you type.
Your escrow year
$
$
$
The balance your servicer is holding at the start of the computation year.
$
Sample figures. Your servicer runs this analysis once a year and must send you the statement at least 30 days before the new payment starts.
Payment after the analysis
$3,879.50
Up $157.50 a month
- Monthly escrow deposit
- $875.00
- Disbursed over the year
- $10,500
- Allowed cushion (2 months)
- $1,750.00
- Projected low point
- -$140.00
- Shortage spread over 12 months
- $1,890.00
The account dips to -$140.00 in its lowest month against a $1,750.00 cushion, so the servicer collects the $1,890.00 shortage in twelve instalments of $157.50.
A surplus over $50 must be refunded within 30 days of the analysis. A surplus under $50 may be refunded or credited against the next deposits.
| Month | Deposit | Paid out | What was paid | Balance |
|---|---|---|---|---|
| Jan | $875.00 | — | No disbursement | $2,075.00 |
| Feb | $875.00 | $2,160.00 | Town tax bill | $790.00 |
| Mar | $875.00 | — | No disbursement | $1,665.00 |
| Apr | $875.00 | — | No disbursement | $2,540.00 |
| May | $875.00 | $2,160.00 | Town tax bill | $1,255.00 |
| Jun | $875.00 | $1,860.00 | Hazard renewal | $270.00 |
| Jul | $875.00 | — | No disbursement | $1,145.00 |
| Aug | $875.00 | $2,160.00 | Town tax bill | -$140.00 |
| Sep | $875.00 | — | No disbursement | $735.00 |
| Oct | $875.00 | — | No disbursement | $1,610.00 |
| Nov | $875.00 | $2,160.00 | Town tax bill | $325.00 |
| Dec | $875.00 | — | No disbursement | $1,200.00 |
Scroll the ledger sideways
The highlighted row is the projected low point, the figure the cushion is measured against. Tax bills follow the Massachusetts quarterly calendar (1 Aug, 1 Nov, 1 Feb, 1 May); the hazard premium renews in June.
Anatomy of the account
Four moving parts
What goes out
Massachusetts towns bill quarterly on 1 August, 1 November, 1 February and 1 May. The hazard premium leaves once a year on the policy anniversary. The account is deliberately lumpy.
The low point
The analysis finds the lowest projected balance across the coming twelve months and compares it with the allowed cushion. That single month decides whether you owe a shortage or are due a surplus.
The statement
You must receive the annual escrow account statement at least 30 days before the new payment begins, showing last year's activity and next year's projection side by side.
Questions we get every January
The analysis lands in most Massachusetts mailboxes in the first quarter, right after the February tax bill.
Your principal and interest are fixed. Your escrow deposit is not. It is recalculated every year against the real tax bills and the real insurance premium, so a reassessment or a premium increase moves the payment even though the note rate never moves.
Federal rules let a servicer hold a cushion of up to one sixth of the annual disbursements, which is two months of deposits. It exists so a tax bill that arrives early, or a premium that rises mid year, does not overdraw the account. It is your money and it is returned when the loan is paid off.
Yes. A shortage may be spread over twelve months by default, but you can send it as a single payment and the escrow portion of your payment returns to the plain monthly figure. Call us before you do it so the payment is coded to escrow and not to principal.
A surplus of $50 or more must be refunded to you within 30 days of the analysis. Under $50 the servicer may refund it or credit it against the coming deposits. Either way it appears on the statement.
On most conventional loans at 80% loan-to-value or lower, yes, usually for a small fee priced into the rate or paid at closing. You then pay the tax bills and the insurance yourself, on time, and a missed bill becomes a lien issue rather than a servicing issue. FHA and USDA loans require escrow.
Bring us the statement, we will read it with you
Send us the annual escrow account statement and we will tell you whether the new payment is right, and whether waiving escrow would actually save you anything.
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