Just about everyone who has a home mortgage uses an escrow account to pay for the insurance and taxes on their home. The insurance companies and tax collection agencies typically bill the homeowner once a year. The escrow account allows you to factor your estimated annual escrow payment for these items into your total monthly payment. We place the monthly portion of your payments for these items into your account and pay the bills when they become due.
Due to a number of factors, the taxes due and insurance costs may change from year to year. When this happens, we analyze the balance in your escrow account each year to see if you have enough escrow funds to cover the anticipated costs. The annual escrow analysis adjusts the escrow portion of your payment to forecast that you have sufficient funds in your escrow account to pay your anticipated insurance and tax bills when we receive them. This will likely result in an increase in your total monthly mortgage payment since insurance and tax premiums tend to increase from year to year. In some instances where these annual premium costs are lower, your total monthly payment may decrease.
To learn more about the escrow process, take a few minutes to review the Frequently Asked Questions below. The last item is sample annual escrow analysis statement for you to review.
If you have any questions, feel free to contact our Customer Service Center at 1.800.220.2497.
Frequently Asked Questions and Sample Statement
Q: What is an escrow account?
A: An escrow account is established by your mortgage servicer on your behalf to collect and pay for real estate expenses such as property taxes, homeowner’s insurance, and flood insurance premiums.
Q: Why am I receiving an escrow analysis statement?
A: Every year, Fidelity will review your escrow account to ensure there are enough funds in your account to cover the disbursements for your escrowed items. We send your escrow analysis statement to inform you of what has been paid from your account over the past 12 months and to inform you of the amounts we are projecting to pay over the next 12 months. The analysis also determines if there is an escrow surplus, shortage, or deficiency in the account then makes the necessary adjustments to your monthly escrow payment.
Q: What is the difference between an escrow shortage and escrow deficiency?
A: An escrow shortage is the amount your escrow account is short in comparison to the required balance projection while an escrow deficiency is the negative balance amount in your escrow account.
Q: How is my escrow payment calculated?
A: Escrow accounts are based on projected activity of payments and disbursements over a 12 month period. The objective is for the balance in the account to never fall below the required cushion during the 12 month computation period.
Q: What is an escrow cushion and why does the bank collect the cushion?
A: Although Federal regulations allow financial institutions to collect up to 1/6th or 2 months of the total annual escrow disbursement obligations, Fidelity collects 1/12th or 1 month of your total annual escrow disbursement obligation. The cushion funds are collected to cover unexpected disbursements and/or increases in the projected disbursements.
Q: How are my property tax and insurance projections calculated for next year?
A: Each year Fidelity projects how much will be needed in escrow based on the last known disbursement from escrow for the escrowed item. The annual amount is divided over the next 12 month period and collected as part of your monthly mortgage payment. When the escrowed item comes due, Fidelity will disburse the required amount from your escrow to pay the item when due. If the escrowed item has increased or decreased from our projections, Fidelity will pay the necessary amount and adjust your escrow account during your next annual escrow analysis.
Q: Why is my payment changing if I have a fixed rate mortgage?
A: Your fixed rate mortgage payment of Principal and Interest remains the same regardless of escrow. The escrows can change year to year and Fidelity performs your annual escrow analysis to adjust the escrow portion of your monthly mortgage payment accordingly.
Q: What is the minimum balance I can have in escrow?
A: The lowest monthly escrow balance is determined by projecting your escrow activity over a 12 month period during which you make monthly escrow payments equal to 1/12th of the annual total while Fidelity makes the necessary escrow disbursements from your account. This low point balance is used to determine what required balance is needed to ensure your account balance does not fall below the required escrow cushion. The required minimum balance is equal to 1 month's escrow payment.
Q: What causes a shortage in my escrow account and an increase in my monthly payment?
A: If your escrow account balance is less than the 1 month cushion required by Fidelity, then your escrow account has a shortage of funds. Your monthly escrow payment may increase due to an increase in property taxes, homeowner’s insurance, and/or flood insurance premiums. Changes in these amounts are not determined by Fidelity but rather your tax assessor and your insurance provider. All questions regarding the changes in your property taxes should be directed to your local municipality tax collector’s office while all changes to your insurance premiums should be directed to your insurance agent.
Q: Can I request my escrow account be reviewed and/or recalculated outside of my annual schedule?
A: Fidelity will reevaluate your escrow account at your request if any of the escrowed items has significantly changed resulting in a material change in your monthly escrow payment. A request to reevaluate your escrow account can be made verbally or by written request, however Fidelity reserves the right to deny your request if the request is made within 60 days of the next regularly scheduled analysis.
Q: If I pay my shortage in full, will my payment amount remain the same?
A: Paying your shortage in full will minimize your payment increase. Your payment amount will increase if the annual insurance premiums and property taxes have increased. Your shortage covers the amount under collected based on the prior year's projections and actual activity in your escrow account and the difference in the actual balance to your required balance. If you pay your shortage in full, Fidelity will recalculate your payment to collect the minimum payment based on your anticipated escrow disbursements which may still be higher than the previously collected escrow payment.
Q: How can I have a shortage if my payment is decreasing?
A: Your payment may still decrease when you have a shortage if there was a larger shortage adjustment being collected in your payment based on your previous analysis.
Q: What happens if there is a surplus in my escrow account?
A: If the escrow analysis determines there is a surplus of funds over the required balance in your account and your account is not delinquent, then those funds will be refunded to you. Surplus funds in excess of $50.00 will be automatically disbursed as a refund check and mailed directly to you under a separate cover from your annual escrow statement. In accordance with Federal regulations, surplus funds totaling less than $50.00 will be treated as a credit in your escrow account and will reduce the required monthly escrow collection.
Sample Escrow Statement with Explanations
About your statement and view all of the Frequently Asked Questions.