Understanding Escrow Shortages and Property Tax Adjustments

Many homeowners are surprised when their fixed-rate mortgage payment increases. While your principal and interest rate remain locked, changes in property taxes and insurance premiums alter your total monthly payment.

Escrow Analysis Mechanics

Lenders perform an annual escrow analysis to ensure your account holds enough funds to cover tax and insurance bills. If local property taxes rise, your escrow account faces a double impact: a deficit from past payments and higher required reserves for the coming year.

Managing Increases

When an escrow shortage occurs, you can either pay the deficit as a lump sum or spread it across your monthly mortgage payments over the next 12 months.