Escrow Analysis 101

If you have a mortgage with an escrow account, you should soon receive an escrow analysis letter. If that letter shows a change in your monthly payment, you may wonder why. An escrow analysis letter is meant to help explain what is changing and what it means for your mortgage payment.

What Is an Escrow Account?

Your escrow account is the part of your mortgage payment set aside to pay certain property-related expenses on your behalf, such as:

  • Property taxes

  • Homeowners insurance

  • Flood insurance, if applicable

  • Other escrowed items tied to your loan

Because these costs can change over time, the amount collected for escrow may need to change too.

What Is an Escrow Analysis?

An escrow analysis is the annual review of your escrow account. It helps determine whether your account is collecting enough to cover those expenses. If taxes or insurance costs have increased or decreased, your escrow payment may go up or down as well.

Why Does It Affect Your Mortgage Payment?

Your monthly mortgage payment may include:

  • Principal

  • Interest

  • Escrow

 

Even if your principal and interest stay the same, your total payment can still change if your escrow amount changes.

When Will the Letter Be Mailed?

Peoples Bank will mail escrow analysis letters the week of September 15.

When you receive your letter, review it carefully so you understand whether your payment is changing and by how much.

When Would the New Payment Start?

If your escrow analysis results in a payment change, the new payment amount will take effect with your November payment.

Why Might My Payment Change?

A payment change is usually caused by one or more of the following:

  • An increase in property taxes

  • A change in homeowners insurance premiums

  • An escrow shortage or surplus

 

An escrow shortage means there was not enough money in your escrow account to cover taxes or insurance costs. If that happens, your monthly payment may increase to make sure enough is collected going forward. 

 

An escrow surplus means there was more money in the account than needed. In that case, your monthly payment may decrease, or you may receive a refund depending on the amount of the surplus.

 

What Should I Look for in the Letter?

Your escrow analysis letter will show:

  • The amount paid from your escrow account

  • Whether your account has a shortage or surplus

  • Your current monthly payment

  • Your new mortgage payment amount, if applicable

  • The effective date of the change

We’re Here to Help

If you have questions after reviewing your letter, call Peoples Bank at 815-802-2907. We’re here to help you understand your escrow account and how it affects your monthly payment.