When you have a mortgage, your lender typically manages an escrow account to cover large annual expenses like property taxes and homeowners insurance, protecting their financial interest in your property. A quarterly escrow analysis is a routine check your lender performs to ensure this account is properly funded.
Each month, your mortgage payment usually includes principal, interest, taxes, and insurance (known as PITI). The taxes and insurance portions go into your escrow account. When tax and insurance bills are due, your lender pays them from this account.
The quarterly escrow analysis compares the actual amounts paid and the projected future costs, then calculates whether your monthly payment needs adjusting. Federal law, through the Real Estate Settlement Procedures Act (RESPA), requires lenders to perform a formal escrow analysis annually, but many provide quarterly statements as status updates.
If the analysis finds a shortage—meaning your escrow funds are insufficient to cover upcoming bills—you may have to compensate either by paying the difference in a lump sum or spreading it over monthly payments. Conversely, if there’s a surplus, lenders must refund amounts of $50 or more, or apply smaller surpluses to reduce future payments.
For example, if your annual property taxes rise from $3,600 to $3,840 and insurance premiums increase from $1,200 to $1,320, your new total annual escrow requirement would be $5,160, raising your monthly escrow portion from $400 to $430.
To manage your escrow account wisely, review your escrow statements carefully, anticipate changes in property taxes or insurance premiums, and shop for better insurance rates if possible. You can learn more about managing your escrow and mortgage by visiting related topics such as Escrow Account and Mortgage Payment Breakdown.
Frequently Asked Questions
Q: Why did my mortgage payment change if my interest rate is fixed?
Your interest rate remains the same, but property taxes and insurance costs can fluctuate. Escrow analysis adjusts your payment to keep pace with those changes.
Q: Can I cancel my escrow account?
Typically, escrow accounts are required if your down payment is below 20%. Some lenders may allow cancellation once you have sufficient equity and a good payment history, but you’d then be responsible for paying taxes and insurance yourself.
Q: Is a quarterly escrow analysis mandatory?
No, RESPA requires an annual escrow analysis. Quarterly statements are often informational updates rather than formal reviews that change payments.
For official guidance, see the Consumer Financial Protection Bureau’s resource on escrow analysis.