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 this review, they look at what you actually paid out for property taxes and insurance over the past year, then calculate what you will owe in the coming year. If those costs went up, your monthly escrow payment goes up with them.
The increase is not a surprise fee or a mistake — it is a direct result of your local government or insurance company charging more. Your lender is straightforward passing that cost to you in monthly chunks instead of asking you to pay a large bill all at once.
Key Takeaways
- Escrow payments rise when property taxes increase, when your homeowners insurance premium increases, or when both do.
- Your lender calculates the new payment based on actual bills paid in the past year and estimated bills for the coming year.
- You will receive a document called an escrow analysis that shows the old payment, the new payment, and the reason for the change.
- You cannot stop your lender from collecting escrow, but you can shop for cheaper homeowners insurance to lower the insurance portion of your payment.
- If the increase seems wrong, you can request that your lender recalculate the escrow analysis.
How your lender calculates the new escrow payment
Your lender starts by adding up what they actually paid out of your escrow account in the past 12 months. This includes property tax bills your county or municipality sent them, and insurance premiums your homeowners insurance company billed them. They also look at what is coming due in the next 12 months based on the bills they have already received.
Then they divide that total by 12 to get your new monthly payment. They also add a small cushion — usually one or two months' worth of expected costs — to make sure the account does not run short if a bill arrives earlier than expected or costs jump unexpectedly.
The document your lender sends you is called an escrow analysis. It lists the old payment, the new payment, and a breakdown showing how much of each goes to taxes and how much goes to insurance. Read this document carefully, because it shows you exactly where the money is going.
Property tax increases and reassessments
Property taxes usually rise a small amount each year as your local government adjusts tax rates or your county reassesses your home's value. Some states reassess every year; others do it every few years. When a reassessment happens, your tax bill can jump significantly.
You cannot control whether your county reassesses your home, but you can challenge the assessed value if you believe it is wrong. Contact your county assessor's office to learn how to file a challenge in your area — the process and important date vary by state. If your challenge succeeds, your property tax bill will drop, and your next escrow analysis will reflect the lower amount.
Insurance premium increases and how to lower them
Homeowners insurance premiums rise for several reasons: your insurance company may have raised rates across your area, you may have filed a claim in the past year, or your home's replacement cost may have increased. Unlike property taxes, you have direct control over your insurance costs.
Shop for homeowners insurance quotes from at least three different companies every two to three years. Rates vary widely, and a company that was cheapest last year may not be this year. When you find a cheaper policy with the same coverage, switch to it. Your lender will receive the new insurance bill and will lower the insurance portion of your escrow payment at the next analysis.
You can also raise your deductible — the amount you pay out of pocket before insurance kicks in — to lower your premium. A higher deductible means a lower monthly escrow payment, though you will pay more if you ever need to file a claim.
When an escrow increase is wrong
Mistakes happen. Your lender might have included a bill twice, used an outdated tax rate, or miscalculated the cushion. If the increase seems too large or you notice an error in the escrow analysis, contact your lender's escrow department and ask them to recalculate.
Bring the actual bills from your county assessor and your insurance company so you can compare them to what the lender used. If the lender made an error, they will issue a corrected escrow analysis and adjust your payment. This process usually takes two to four weeks.
What you cannot change about escrow
If your loan is a conventional mortgage with less than 20 percent down, or if you have an FHA loan, your lender is required by law to collect escrow for property taxes and insurance. You cannot opt out, even if you want to pay these bills yourself.
Once you have paid down your loan to 20 percent of the original home value (or 22 percent for FHA loans), you can request that your lender stop collecting escrow. At that point, you will pay property taxes and insurance directly to the county and insurance company, and your mortgage payment will drop.
Understanding the escrow analysis letter
Your lender must send you an escrow analysis at least once a year, and they must do it before your payment changes. The letter will show a table with columns for property taxes, insurance, and total. Look for these rows: the amount paid in the past year, the amount expected in the coming year, the old monthly payment, and the new monthly payment.
If the new payment is higher, the letter should explain why — usually a line that says something like "property tax increase" or "insurance premium increase." If the explanation is missing or unclear, call your lender and ask them to walk you through the numbers. You have the right to understand where your money is going.
Frequently Asked Questions
Can I dispute the escrow increase?
You can dispute it if you believe the lender made a math error or used wrong information. Request a recalculation and provide copies of your actual tax and insurance bills. However, if the increase is due to genuine increases in taxes or insurance rates, the lender can legally raise your payment.
What happens if my escrow account runs short?
If bills come due faster than expected or costs jump mid-year, your escrow account might not have enough money. Your lender will either ask you to pay the shortage in a lump sum or spread it across your next 12 monthly payments. This is why lenders add a cushion to your escrow payment.
Will my escrow payment ever go down?
Yes, if your property taxes or insurance costs decrease. This happens less often than increases, but it can occur if you switch to cheaper insurance, if your county lowers tax rates, or if your home's assessed value drops after a successful challenge.
Do I have to accept the new escrow payment?
Your lender can legally change your payment based on the escrow analysis. However, if you believe the analysis contains errors, you can request a recalculation before the new payment takes effect. Once you have verified the numbers are correct, the new payment applies to your next mortgage bill.
How often does escrow get reviewed?
Your lender must perform an escrow analysis at least once per year, usually around the anniversary of your loan closing. Some lenders do it more often if they notice the account is running low or high. You will receive a letter each time the analysis is completed.