Escrow Account Mortgage 2026
What escrow covers, how your monthly payment is calculated, escrow shortages, and how to remove it.
David Rodriguez
NMLS #234567 · HUD-Certified Housing Counselor
15 years in mortgage servicing and consumer education. Helped 2,000+ homeowners understand escrow accounts, property taxes, and insurance requirements.
Quick Answer
An escrow account collects 1/12th of your annual property taxes and homeowners insurance each month, so you don't have to pay those large bills yourself. Your servicer pays them when due. Escrow is required on FHA, VA, USDA loans and conventional loans with <20% down. You can request removal on conventional loans once you reach 20% equity. → Compare lenders and see your full PITI payment.
Understanding Your PITI Payment
Your total monthly mortgage payment has 4 components — PITI:
Principal
Reduces your loan balance
$650/mo
Interest
Cost of borrowing the money
$1,350/mo
Taxes
Property taxes ÷ 12
$400/mo
Insurance
Homeowners insurance ÷ 12
$100/mo
Total PITI on $300K loan @ 6.75%: $650 + $1,350 + $400 + $100 = $2,500/month
The T + I portion ($500) goes into your escrow account each month
How Escrow Payment Is Calculated
Annual property taxes
From your county tax assessment
Annual homeowners insurance
From your insurance policy
Total annual escrow
Taxes + Insurance
Monthly escrow payment
$6,000 ÷ 12
RESPA cushion (2 months)
Required buffer at closing
Escrow Shortage vs. Surplus
Escrow Shortage
Happens when taxes or insurance increase more than expected. Your servicer sends an escrow analysis showing the deficit.
Your options:
- 1.Pay the shortage in a lump sum (immediate fix)
- 2.Spread over 12 months (higher monthly payment)
Escrow Surplus
Happens when taxes or insurance decrease, or you overpaid. RESPA requires servicers to refund surpluses over $50.
What happens:
- ✓Refund check mailed within 30 days of annual analysis
- ✓Future monthly payment reduced
- ✓Surpluses under $50 may be kept as cushion
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How to Remove Your Escrow Account
Requirements to waive escrow:
- ✓Conventional loan (not FHA, VA, or USDA)
- ✓LTV at or below 80% (20%+ equity)
- ✓No late payments in past 12 months
- ✓Loan must be at least 12 months old
- ✓Lender must allow escrow waivers
Escrow waiver costs:
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Frequently Asked Questions
What is an escrow account on a mortgage?
A mortgage escrow account is a separate account managed by your loan servicer that collects a portion of your monthly payment to cover property taxes and homeowners insurance. Instead of paying these bills yourself in large lump sums, you pay 1/12th of the annual amount each month. The servicer then pays your tax and insurance bills when they come due. Escrow is required on most FHA, VA, and USDA loans, and on conventional loans with less than 20% down.
How is my escrow payment calculated?
Your monthly escrow payment = (Annual property taxes + Annual homeowners insurance premium) ÷ 12, plus a 2-month cushion buffer required by RESPA. Example: $4,800/year taxes + $1,200/year insurance = $6,000/year ÷ 12 = $500/month escrow. Your total PITI payment = Principal + Interest + $500 escrow. Servicers review your escrow account annually and adjust the payment if taxes or insurance costs change.
What is an escrow shortage and how do I fix it?
An escrow shortage occurs when your escrow account doesn't have enough funds to cover your tax and insurance bills — usually because taxes or insurance increased more than expected. Your servicer will notify you with an escrow analysis showing the shortage. You can either: (1) Pay the shortage in a lump sum, or (2) Spread it over 12 months with a higher monthly payment. Shortages are common when property values rise (higher taxes) or after insurance renewals.
Can I remove my escrow account?
You can request escrow removal (called "escrow waiver") if: you have a conventional loan, your LTV is 80% or below (20%+ equity), you have a good payment history (no late payments), and your lender allows it. Most lenders charge a fee of 0.125-0.25% of the loan amount for an escrow waiver. FHA loans require escrow for the life of the loan. VA and USDA loans also typically require escrow. If approved, you'll be responsible for paying property taxes and insurance directly.
What happens to my escrow account when I refinance?
When you refinance, your old escrow account is closed and any remaining balance is refunded to you (typically within 30 days of payoff). Your new lender sets up a new escrow account, which requires an upfront deposit (usually 2-3 months of taxes and insurance). This is why refinancing requires cash upfront even if you're rolling closing costs into the loan — the escrow setup is a separate cost.