Your escrow payment rose because your property taxes, homeowners insurance, or both increased
Your lender reviews your escrow account once a year, usually around the anniversary of your loan closing. During that review, they calculate what you will owe over the next twelve months for property taxes and homeowners insurance, subtract what you have already paid into escrow, and adjust your monthly payment up or down. If either tax or insurance went up, your payment goes up. If both stayed flat, your payment would stay the same or drop.
The increase is not a surprise fee or a lender decision to charge you more. It is a direct result of your local government or insurance company raising their rates. Your lender is simply collecting enough each month to cover what you will actually owe.
Key Takeaways
- Escrow payments rise when property taxes or homeowners insurance premiums increase, which your lender discovers during the annual escrow review.
- Your lender must send you a written escrow analysis at least ten days before the payment change takes effect, showing the old and new amounts.
- Property tax increases are set by your local assessor or county tax office and are not negotiable through your lender.
- Insurance premium increases can sometimes be reduced by shopping for a new policy or raising your deductible, though you must maintain the coverage your lender requires.
- If your escrow account has a large surplus, your lender may be required to refund the overage or credit it against future payments.
How the annual escrow review works
Your lender is required by federal law to conduct an escrow analysis at least once per year. They pull the current tax bill from your county assessor and the current insurance premium from your homeowners policy. They add up what you will owe for both over the next twelve months, divide by twelve, and that becomes your new monthly escrow payment.
The lender must send you a written statement of the analysis at least ten days before the new payment takes effect. This document shows your old monthly payment, your new monthly payment, the reason for the change, and a breakdown of how much goes to taxes versus insurance. Read this document carefully—it is the only official record of why the change happened.
If you did not receive a written analysis before your payment changed, contact your lender's loan servicing department and ask for it. You are may have access to to it by law.
Property tax increases and what you can do
Property taxes are set by your county or municipality, not by your lender. If your assessed value went up or your local tax rate increased, your escrow payment will rise. You cannot negotiate this through your lender because your lender has no control over it.
What you can do: file a property tax appeal with your local assessor if you believe your home was assessed too high. The process and deadline vary by state and county. Some assessors allow appeals once per year; others have a narrow window after the assessment is mailed. Contact your county assessor's office directly to learn the deadline and process for your area. If your appeal is successful and your assessed value drops, your lender will see the lower tax bill at the next escrow review and lower your payment accordingly.
You can also contact your county assessor to understand why the assessment changed. Sometimes assessments rise because of a data error—a bedroom counted twice, or square footage recorded wrong. If you find an error, the assessor may correct it without a formal appeal.
Insurance premium increases and your options
Homeowners insurance premiums rise for several reasons: your insurer raised rates across your area, your home's replacement cost increased, you filed a claim, or your insurer simply decided to exit your market and sold your policy to a more expensive carrier. Unlike property taxes, insurance is negotiable.
You can shop for a new policy with a different insurer. Contact three to five insurers in your state and get quotes for the same coverage your current policy provides. Your lender requires you to maintain certain minimum coverage—usually dwelling coverage equal to at least 80 percent of your home's replacement cost—but you can choose the deductible and add or remove optional coverages like water backup or scheduled personal property.
If you find a cheaper policy, notify your lender in writing with the new insurer's name and policy number. Your lender will contact the new insurer to confirm coverage, then adjust your escrow payment down at the next review. The process takes two to four weeks.
You can also raise your deductible—the amount you pay out of pocket when you file a claim—to lower your premium. A deductible of $1,000 or $2,500 is common; raising it to $5,000 can cut your premium significantly. Make sure you have cash reserves to cover the higher deductible if you need to file a claim.
Understanding escrow surplus and shortages
If your lender collected more money than you actually owed over the past year, you have an escrow surplus. If they collected less, you have a shortage. Both are discovered during the annual review.
A small surplus or shortage—usually under $50—is carried forward to next year with no action. A larger surplus may be refunded to you as a check, or your lender may credit it against your next month's payment. Federal law requires lenders to refund surpluses over a certain threshold (the threshold varies by state, but is often around $50). A shortage means your new payment will be higher than it would otherwise be, because the lender is collecting back what they undercollected.
You can request a refund of a surplus even if it is small. Call your lender's loan servicing department and ask. They may require a written request, but most will process it.
When to contact your lender about the increase
If your escrow payment increased and you did not receive a written analysis, contact your lender immediately. You are may have access to to the analysis, and it will explain exactly what changed.
If you received the analysis but believe the numbers are wrong—for example, the tax amount does not match your tax bill, or the insurance premium is higher than your actual policy—contact your lender with copies of the correct documents. Errors happen. Your lender can correct them and recalculate your payment.
If the increase is correct but you cannot afford the new payment, contact your lender to discuss your options. Some lenders can temporarily lower your escrow payment if you are facing hardship, though you will owe the difference later. Others may allow you to pay the shortage in installments. Do not ignore the increase or stop paying; that will trigger a loan violation and could eventually lead to foreclosure.
Frequently Asked Questions
Can my lender raise my escrow payment without telling me?
No. Your lender must send you a written escrow analysis at least ten days before the payment changes. If your payment changed without notice, contact your lender immediately and ask for the analysis. If they cannot produce it, the payment change may not be valid.
What if my property taxes went down but my escrow payment still went up?
Your insurance premium likely increased enough to offset the tax decrease. Check your escrow analysis to see the breakdown. If the insurance amount seems wrong, compare it to your actual insurance bill and contact your lender to correct it.
Do I have to keep my escrow account?
That depends on your loan type and how much equity you have. Conventional loans typically allow you to drop escrow once you reach 20 percent equity, though your lender may charge a fee. FHA and VA loans usually require escrow for the life of the loan. Contact your lender to ask whether you are may be able to access to remove escrow and what the process costs.
If I pay off my mortgage early, do I get my escrow money back?
Yes. When you pay off your loan, your lender closes the escrow account and refunds any remaining balance to you, usually within 30 to 45 days. The refund check will come from your lender's loan servicing department.
Can I dispute the property tax amount my lender is using?
You can appeal your property tax assessment with your county assessor, which may lower your assessed value and therefore your taxes. However, you cannot dispute the amount your lender uses in escrow—they are required to use the current tax bill from your assessor. If your appeal succeeds, the lower tax will show up at the next escrow review.