Escrow Shortage Calculator

Your principal and interest payment is fixed (if you have a fixed-rate mortgage), but your escrow account is variable. Lenders use escrow to pay your property taxes and home insurance. If your property is reassessed at a higher value, your tax bill goes up. If your home insurance premium increases, your insurance bill goes up. Your lender will increase your monthly payment to cover these new higher costs, plus an additional amount to make up for the shortage from the previous year.

Typically, lenders spread an escrow shortage over a 12-month period. This means your payment will be significantly higher for one year while you repay the shortage. After 12 months, the shortage portion of the payment drops off, but your payment will likely remain higher than your original payment because the new, higher tax and insurance rates are the new baseline.

You cannot dispute the math of the escrow shortage itself, but you can dispute the underlying causes. You can appeal your property tax assessment with your county if you believe your home was overvalued. You can also shop around for a cheaper home insurance policy. If you find a cheaper policy, your lender will recalculate your escrow requirements. You also have the right to request a full escrow analysis review from your lender.

If the new payment is unaffordable, contact your lender immediately. You have a few options: you can ask to spread the shortage over a longer period (such as 24 or 36 months instead of 12), which lowers the monthly impact. In some cases, if you have enough equity, you may be able to waive the escrow requirement entirely and pay taxes/insurance on your own, though you still owe the shortage amount.

Federal law (RESPA) allows lenders to hold a cushion of up to two months of your estimated annual taxes and insurance. This cushion protects the lender in case your taxes or insurance increase unexpectedly, ensuring there's enough money to pay the bills when they come due.