How to read your annual escrow analysis

Once a year your lender sends a page packed with numbers. Most of it is noise. Four lines really matter.

What the statement is for

RESPA (the Real Estate Settlement Procedures Act) requires your servicerThe company you actually send your payment to.Click to open the full glossary. to send an escrow analysisThe yearly check that resets how much escrow you pay each month.Click to open the full glossary. each year. It sets what went into your escrow against what went out for property taxes and homeowners insurance. Then it projects what next year will cost. That projection sets your new monthly payment.

The four sections to look for

• Account history. A month-by-month list of money in and money out. Money in is your payments. Money out is your tax and insurance bills. Your statement calls those payouts disbursements. One that ran higher than planned is the usual cause of a shortage.
• Projected activity. What your servicer plans to collect and pay out next year. It is projected from your most recent tax and insurance bills. This is the number that sets your new payment.
• The cushion. The spare cash your lender may hold. By law it can be no more than two months of bills.
• Your new monthly payment. What really changes on your next bill. The loan part tends to hold. The escrow part is the one that moves.

Shortage or surplus: what your statement is telling you

If the account ran below the required minimum, you have a shortageYour escrow ran short, so your payment goes up to catch up.Click to open the full glossary., 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 it needs, you have a surplusYour escrow over-collected, so you may get money back.Click to open the full glossary.. If it is $50 or more and you are current, your servicer must refund it within 30 days. Under $50, they may refund it or credit it to next year.

Three numbers worth double-checking

1. The tax amount. Check it against the real bill from your county. Now and then a lender uses a figure that is a year old.
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.

One statement a year is easy to read. The hard part is planning for a tax or insurance increase before it lands. Your free dashboard projects your escrow from the bills you enter. With Pro, we can also remind you each year to check your tax and re-shop your insurance.