Your Guide to Escrow Accounts

Property taxes, homeowners insurance, and annual escrow analyses often take center stage this time of year, making it the perfect opportunity to revisit one of the most misunderstood parts of a mortgage. We've included a simple breakdown of escrow accounts below to help eliminate surprises and make managing your home expenses easier.

How Does an Escrow Account Work?

Think of an escrow account as a savings account managed by your mortgage servicer. Each month, a portion of your mortgage payment is set aside so funds are available when property tax, homeowners insurance and/or mortgage insurance comes due. Rather than having to pay those large expenses all at once, the payments are spread out over the course of the year. This happens without any extra work on your part.

What Is an Escrow Analysis?

Your mortgage servicer has to estimate what your expenses will be to manage your account. That means that each year an analysis is necessary to determine if adjustments need to be made. Because costs can increase or decrease from year to year, the analysis helps ensure your escrow account has enough money to cover upcoming payments when they are due – and not too much of a cushion (no more than 1/6 of your total annual projected escrow disbursements).

The analysis provides a detailed look at escrow activity over the past year, including deposits, payments made on your behalf, and projected expenses for the coming year. On GreenState.org, we've included an example analysis with key areas explained. 

Escrow Analyses Don’t Always Mean Higher Payments

A common misconception is that receiving an escrow analysis automatically means your mortgage payment is going up. In reality, an escrow analysis is simply an annual review of your account that compares the amount collected for property taxes and homeowners insurance with the actual costs that were paid and what's expected in the coming year.

Depending on those results, your account may have a shortage, a surplus, or remain right on target. The purpose of the analysis is to help keep your escrow account accurately funded so tax and insurance payments can be made on time without creating unexpected financial burdens.

Quick Tip: Review Your Annual Statement

Even if you don't expect changes, take a few minutes to review your escrow analysis each year. Reviewing your analysis can help you understand how your account is performing and whether any adjustments may be needed moving forward.

Our Member Assistance Center is available to answer basic questions regarding your escrow analysis. They are available at (800) 397-3790. You can also contact GreenState Mortgage Servicing directly at [email protected]. (If you have specific questions about why your property taxes or insurance figures  havechanged, we recommend contacting your county or insurance representative.)

For more information and to view an example analysis, visit greenstate.org/escrow.