Is Your Escrow Account Costing You Money? How to Read Your Escrow Analysis
- Maria Tornga
- 2 days ago
- 4 min read
Escrow is convenient—but it can also quietly tie up more of your money than necessary. Here’s how to read your annual escrow analysis, spot red flags, and understand common Michigan “payment jump” scenarios (like taxable value uncapping after a purchase). Plus: what to do if you’re owed a refund.
Escrow Feels “Set It and Forget It”… Until Your Payment Jumps
Most homeowners pay property taxes and homeowners insurance through an escrow account. It’s convenient—your servicer pays the big bills when they’re due.
But here’s the catch: escrow can hold more of your money than you realize, and if taxes or insurance change, your monthly payment can swing fast.
Real-life example (common Michigan story):
A first-time buyer closes, their payment looks great… and then 12–18 months later they get a letter saying their mortgage payment is increasing. They assume the lender “raised the payment,” but the real cause is usually property taxes resetting after the sale (we’ll talk about that in the Michigan section).
How Escrow Accounts Work
With escrow, your monthly mortgage payment includes:
Principal + interest (your actual loan payment)
Escrow (money collected for taxes + insurance)
Your servicer uses escrow funds to pay:
Your property tax bills
Your homeowners insurance premium
Simple example:
If annual property taxes are $3,600 and annual insurance is $1,200, that’s $4,800/year. Divide by 12 = $400/month collected into escrow.
Why servicers require escrow: If taxes go unpaid, the county can place a lien. If insurance lapses and there’s a loss, the home (the lender’s collateral) is at risk. Escrow helps prevent both.
The Escrow “Cushion”: Why You Pay Extra
Federal rules allow servicers to keep a cushion up to about two months of your escrow payments.
So if your escrow portion is $400/month, a two-month cushion is about $800 sitting in the account.
That cushion isn’t automatically “wrong.” It’s there to prevent shortages if:
your taxes increase,
insurance premiums jump,
or bills come due before enough has been collected.
But you should still verify the cushion isn’t above what’s permitted—and that the projected bills match reality.
How to Read Your Annual Escrow Analysis (What to Look For)
Once a year, your servicer must send an escrow analysis statement. This is your “receipt + forecast.”
Key lines to check
Starting balance
Payments in (what you paid into escrow)
Payments out (what they paid for taxes/insurance)
Ending balance
Projected expenses (their forecast for next year)
Required cushion (extra held in reserve)
New escrow payment (your updated monthly amount)
Red flags that deserve a call
Projected taxes/insurance are much higher than last year with no clear reason
The cushion looks larger than expected
A surplus is shown but no refund/credit is happening
Your payment rose, but you can confirm your taxes/insurance didn’t
Important note about refunds: If your escrow analysis shows a surplus of $50 or more, rules require the servicer to refund it (assuming you’re current), typically within a set window after the analysis.
Michigan “Payment Jump” Scenarios (What’s Normal vs. What’s Fixable)
Scenario 1: The taxable value “uncap” surprise after you buy
In Michigan, a transfer of ownership can trigger taxable value to uncap in the year after the transfer—which often makes the first full tax cycle after closing feel like a shock.
What this looks like:
Escrow was initially based on the prior owner’s capped taxable value
Your new tax bill arrives higher
You get hit with:
an escrow shortage (to catch up), and
a higher monthly escrow going forward
This isn’t “overpaying”—but it is something you should understand early so you can plan for it.
Scenario 2: You switched homeowners insurance and escrow didn’t update
If you shop insurance and your premium drops, but the servicer keeps collecting the old amount, you might carry an unnecessary escrow balance.
Fix: Send your updated declarations page to the servicer and request an escrow recalculation.
Scenario 3: Principal Residence Exemption (PRE) wasn’t applied (or wasn’t reflected)
Michigan’s Principal Residence Exemption (PRE) can exempt a principal residence from up to 18 mills of local school operating tax (when eligible).
If you filed PRE after closing, your tax bill may change—but your servicer might not automatically re-forecast escrow until the next analysis.
Fix: If your latest tax bill reflects PRE savings, ask the servicer to review escrow now.
Should You Keep Escrow or Request an Escrow Waiver?
Some homeowners choose to pay taxes/insurance directly once they have enough equity and meet servicer rules.
You might like an escrow waiver if:
You’re disciplined about saving for big bills
You want direct control over timing
You prefer your money earning interest in your own account (where applicable)
You should probably keep escrow if:
You want one predictable monthly payment
You’d rather not track due dates
Lump-sum bills would stress your budget
Important: Each servicer’s waiver rules are different. Some require a certain equity level and may charge a fee.
What to Do Next (Fast Action Plan)
Grab your escrow analysis (most recent).
Pull your:
latest property tax bill
current insurance declarations page
Compare:
what the servicer projects vs. what you actually pay
If something looks off, call your servicer and ask for:
a breakdown of projected taxes/insurance
confirmation the cushion is within allowed limits
whether a surplus refund applies
Want a second set of eyes?
Contact Mortgage Up and we’ll help you understand what’s driving your payment change—and whether you have options (new insurance quotes, refinance planning, or escrow strategy).
FAQs (Escrow Accounts)
Can my mortgage payment go up even if my rate is fixed?
Yes. Your principal + interest stays fixed (with a fixed-rate mortgage), but taxes and insurance can change, which changes escrow and your total monthly payment.
How often is escrow analyzed?
Typically once per year, but you can request information or ask questions any time (and servicers have rules around responding).
If I have a surplus, do I always get a refund?
If the surplus shown on the analysis is $50+, rules generally require a refund (assuming you’re current).
Why did my Michigan taxes jump after I bought?
Often due to taxable value uncapping after a transfer of ownership, which can show up in the calendar year following the purchase.
Does filing PRE automatically update my escrow?
Not always right away. PRE can reduce eligible school operating taxes, but the servicer may not adjust projections until the next analysis unless you request a recalculation.
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