Escrow shortage calculator

When your homeowners premium goes up and your insurance is paid from escrow, your mortgage payment rises twice. It rises once because the monthly escrow deposit now has to cover the larger premium, and again because the servicer paid the bigger bill from an account that was funded for a smaller one. The calculator separates the two.

How to use it

Gather your latest mortgage statement or escrow analysis statement. Enter:

• Monthly principal and interest. This part of the payment does not change.
• Annual property taxes as the servicer escrows them.
• Last year's homeowners premium and the new premium from the renewal notice.
• Other escrowed items per year: flood insurance, mortgage insurance.
• The checkbox for a cushion. Leave it ticked if your servicer holds the maximum cushion; untick it if your statement shows none.

How the math works

The old and new monthly escrow deposits are each year's taxes, premium and other items divided by 12. The shortage is the premium increase, because the servicer paid the new bill from money collected for the old one. With the cushion box ticked, the tool also adds the extra cushion, one-sixth of the yearly increase in escrowed items. The shortage plus the extra cushion is spread over 12 months. The first-year payment is principal and interest, plus the new escrow deposit, plus one-twelfth of the catch-up. After the year, the catch-up drops off.

Say, hypothetically, $1,900 of principal and interest, $4,800 of taxes, and a premium that rises from $2,400 to $3,600. The escrow deposit goes from $600 to $700 a month. The shortage is $1,200, and the larger cushion adds $200, so the catch-up is $1,400, or $116.67 a month. The first-year payment is $2,716.67, up from $2,500, an increase of $216.67 a month (8.7%). From the following year it settles at $2,600.

What it assumes

The Consumer Financial Protection Bureau's Regulation X (12 CFR 1024.17) limits an escrow cushion to one-sixth of the estimated annual escrow payments, and allows a shortage of one month's payment or more to be spread over at least 12 months (CFPB). The tool uses both: the maximum cushion if you tick the box, and a 12-month repayment. A smaller shortage can be handled differently, so ask your servicer. Every dollar figure is an editable example, not a market figure. The tool holds property taxes flat and assumes the account was exactly on target before the increase.

Where it stops being right

Servicers set the timing, so the shortage may appear at the next escrow analysis rather than at renewal, and the analysis may reflect tax changes or a different cushion. The rule sets a ceiling on the cushion; a servicer or your mortgage documents may use less. State law can also add requirements. Your own statement is the number that counts. Ask the servicer for the analysis worksheet and the date the shortage was calculated.

You can usually pay a shortage in a lump sum, which keeps the monthly increase to the premium change alone. The other lever is the premium itself: shopping the policy or adjusting coverage before the renewal date can shrink both parts of the increase. See escrow shortages after a premium increase and your home insurance premium jumped: what to do. Start with the home insurance renewal increase checker to see where the premium change came from, and compare offers in the homeowners quote comparison worksheet.