An escrow analysis is a review performed by your mortgage lender to ensure they are collecting enough money to cover your property taxes and homeowners insurance. Because tax rates and insurance premiums change every year, your monthly mortgage payment often fluctuates to account for these shifts.
What is a Shortage?
A shortage occurs when your escrow balance falls below the minimum required amount (the "cushion"). This usually happens if your property taxes increased or your insurance premium went up. Lenders typically give you two options: pay the shortage in a lump sum or spread the cost over the next 12 months, which will increase your monthly payment.
The "Two-Month Cushion" Rule
Under the Real Estate Settlement Procedures Act (RESPA), lenders are allowed to maintain a "cushion" equal to one-sixth of the total annual disbursements. This represents two months of escrow payments, acting as a buffer against unexpected tax or insurance hikes.
Surplus vs. Shortage Examples
Example 1 (Surplus): Your taxes decreased by $600. Your analysis will likely show a surplus, and the lender may send you a check for the overage and lower your future monthly payments.
Example 2 (Shortage): Your insurance increased by $400 and your tax bill by $200. You now have a $600 shortage plus a higher base requirement. Your monthly payment will rise to cover the $600 deficit AND the new, higher annual costs.
function calculateEscrow() {
var currentBalance = parseFloat(document.getElementById('currentBalance').value) || 0;
var monthlyContribution = parseFloat(document.getElementById('monthlyContribution').value) || 0;
var annualTaxes = parseFloat(document.getElementById('annualTaxes').value) || 0;
var annualInsurance = parseFloat(document.getElementById('annualInsurance').value) || 0;
var monthlyFees = parseFloat(document.getElementById('monthlyFees').value) || 0;
var cushionMonths = parseInt(document.getElementById('cushionMonths').value);
var resultDiv = document.getElementById('escrowResult');
// 1. Calculate Annual and Monthly Disbursements
var annualDisbursements = annualTaxes + annualInsurance + (monthlyFees * 12);
var monthlyDisbursementRequirement = annualDisbursements / 12;
// 2. Calculate Required Cushion
var requiredCushion = monthlyDisbursementRequirement * cushionMonths;
// 3. Projected Monthly Adjustment
// We compare what is being paid (monthlyContribution) vs what is actually needed (monthlyDisbursementRequirement)
var monthlyPaymentChange = monthlyDisbursementRequirement – monthlyContribution;
// 4. Analyze current standing (Shortage/Surplus)
// Simplified analysis: Minimum balance check
// This assumes we are at the point of analysis
var projectedMinimumBalance = currentBalance; // Simplification for user estimation
var statusValue = currentBalance – requiredCushion;
var outputHTML = '
';
outputHTML += 'Estimated Shortage: $' + Math.abs(statusValue).toFixed(2) + '';
outputHTML += 'Your current balance is below the required cushion. Your lender may increase your payment or request a lump sum.';
outputHTML += '
';
} else {
outputHTML += '
';
outputHTML += 'Estimated Surplus: $' + statusValue.toFixed(2) + '';
outputHTML += 'Your current balance exceeds the required cushion. You may receive a refund check or see a decrease in payments.';
outputHTML += '
';
}
var totalNewPaymentStatus = ";
if (monthlyPaymentChange > 0) {
totalNewPaymentStatus = 'Your monthly escrow payment needs to increase by $' + monthlyPaymentChange.toFixed(2) + ' just to cover annual costs.';
} else if (monthlyPaymentChange < 0) {
totalNewPaymentStatus = 'Your monthly escrow payment could decrease by $' + Math.abs(monthlyPaymentChange).toFixed(2) + ' based on your annual costs.';
} else {
totalNewPaymentStatus = 'Your monthly contribution is currently perfectly aligned with your disbursements.';
}
outputHTML += " + totalNewPaymentStatus + ";
outputHTML += '*Note: This is an estimation. Actual lender analysis involves a 12-month projection of the lowest point in your account balance.';
resultDiv.innerHTML = outputHTML;
resultDiv.style.display = 'block';
resultDiv.style.backgroundColor = '#fefefe';
resultDiv.style.border = '1px solid #ddd';
}