How to read your annual escrow analysis

Once a year, an envelope from your servicer arrives with a dense statement full of numbers. Most of the page is noise. Four lines actually matter.

What the statement is for

RESPA (the Real Estate Settlement Procedures Act) requires your servicer to send an escrow analysis every 12 months. It reconciles what was collected in your escrow account against what was actually paid out for taxes and insurance, then projects the coming year's costs and sets your new monthly payment accordingly.

The four sections to look for

• Account history. A month-by-month table of deposits (your payments) and disbursements (tax and insurance bills paid). An unusually large disbursement is usually the driver of a shortage.
• Projected activity. What your servicer expects to collect and pay out over the next 12 months, based on your most recent tax and insurance bills. This is the forward-looking number that sets your new payment.
• The cushion. The reserve balance your servicer is required to maintain, capped by RESPA at two months' worth of projected disbursements.
• Your new monthly payment. What actually changes on your next statement, broken into principal & interest (usually unchanged) and the new escrow portion.

Shortage or surplus: what your statement is telling you

If the account ran below the required minimum, you have a shortage, and you'll typically be offered the choice to pay it as a lump sum or spread it over the next 12 payments. If the account holds more than $50 above the cushion, you have a surplus, and your servicer must either refund it or credit it toward future payments. They cannot simply keep it.

Three numbers worth double-checking

1. The tax amount. Confirm it matches your county's actual bill. Servicers occasionally use an estimate that's stale by a cycle.
2. The insurance amount. If you switched carriers or your premium changed mid-year, make sure the new figure is reflected, not the old one.
3. The cushion math. It should never exceed 1/6 (two months) of your projected annual disbursements. If it looks larger, it's worth a call to your servicer.

Reading one statement a year is manageable. Catching a tax reassessment or insurance hike before your servicer's annual cycle even runs is what actually saves you from a surprise. CasaCrow monitors both year-round.