What Is an Escrow Shortage or Surplus in a Mortgage?
An escrow shortage or surplus happens when your mortgage escrow account doesn’t match what’s needed to pay your property taxes or insurance. Your lender reviews the account each year and adjusts your monthly payment based on these changes.
✅ What Causes an Escrow Shortage or Surplus?
Your escrow balance changes when taxes or insurance costs rise or fall. If your bills are higher than expected, you’ll have a shortage. If they’re lower, you’ll see a surplus. Lenders are required to perform an annual escrow analysis to reconcile the difference.
- Property tax increases cause most shortages
- Insurance premium reductions often create small surpluses
- Surplus funds over $50 are typically refunded to the borrower
💰 How Lenders Handle Shortages and Surpluses
When your lender finds a shortage, you can usually choose between:
- Paying the balance in full
- Adding the shortage to future monthly payments (spread over 12 months)
For surpluses, the lender may either reduce your monthly payment or issue a refund check if your account is current.
📊 How to Avoid Future Escrow Shortages
- Track your property tax and insurance renewals each year
- Notify your loan servicer if you change insurance companies
- Keep a small cushion in your escrow balance to cover unexpected increases
- Review your mortgage servicer’s annual statement for accuracy
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