Escrow balance too high? Ask for an analysis

Hand holding pen and signing mortgage

If you pay your property taxes and homeowners insurance to your mortgage company in monthly installments, the money goes into an escrow account (also called an impound account) until the bills are due.

Sometimes that account can end up with too much money in it.

Fortunately, there’s an easy way to get the excess back.

The company that services your mortgage determines how much you must contribute to your escrow account each month by dividing the annual cost of your homeowners insurance, property tax and, if applicable, lender-required flood insurance by 12. Servicers also take into account the minimum balance they require borrowers to keep at all times.

Servicers can choose whether to require a minimum reserve, but they cannot maintain a cushion of more than two months’ worth of tax and insurance payments per federal regulations.

This cushion is in addition to the amounts that need to be in the account to pay the tax and insurance bills on time.

There are several ways that borrowers can end up with too much money in a mortgage impound account:

Homeowners can quickly get a general idea of whether they might have too much in an escrow account by performing the following calculation:

If there is money left at the end of this calculation, the borrower might be entitled to a refund of the excess.

Getting a refund is simple. Simply contact your lender and ask for an analysis.

If you are correct that there is a surplus, the lender is required to send you a check within 30 days if the surplus is $50 or more. Your monthly mortgage payment might also be adjusted downward slightly.

If you aren’t in a hurry to get your refund (say, because it’s a small amount of money), just wait a few months -- lenders usually perform an analysis once or twice a year whether you ask them to or not.

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