Millions of homeowners are opening envelopes from their mortgage servicers this spring with an unpleasant surprise: a notice that their monthly payment is going up, sometimes by $100 to $300 or more.
The culprit is usually an escrow shortage, and it has nothing to do with your credit score or whether you paid on time.
Escrow is the account your lender uses to collect and pay your property taxes and homeowners insurance.
Your servicer estimates those costs a year in advance, divides them by 12, and tucks that amount into your monthly payment.
When the estimate misses the mark, you get a shortage notice.
The biggest driver right now is property taxes.
Home values jumped sharply in many markets over the past few years, and county assessors have been catching up.
Even if your tax rate stayed flat, a higher assessed value means a bigger bill, and your servicer may have budgeted based on last year's number.
Insurance is the other half of the squeeze.
Homeowners premiums climbed in many states, particularly in Florida, Texas, Louisiana, and parts of California, where insurers have raised rates or pulled back from writing policies altogether.
A premium that jumped 20 or 30 percent can blow a hole in an escrow account fast.
If your servicer paid your tax bill late and ate a penalty, that cost can land in your escrow analysis.
So can a change in your flood zone, a new HOA-required insurance policy, or a missed homestead exemption that you forgot to file.
What most people don't realize is that you usually have options.
You can pay the shortage in one lump sum, which keeps your monthly payment closer to where it was.
Or you can spread it across 12 months, which softens the hit but raises your payment more gradually.
It is worth calling your servicer and asking for a breakdown of the math.
Specifically, ask what tax amount and what insurance premium they used.
If your county's actual tax bill is lower than what the servicer projected, you can often get the analysis corrected, and that can shrink or erase the shortage.
You should also double-check that your escrow account is not being overfunded.
Federal rules limit how much cushion a servicer can hold, generally no more than one-sixth of your annual escrow payments.
If the numbers look padded, ask for a written explanation.
One more thing worth doing: shop your homeowners insurance at renewal.
Getting three quotes can save several hundred dollars a year, and a lower premium means a lower escrow bill next time the analysis comes around.
An escrow shortage letter feels like bad news, but it is really just a recalculation.
Read the breakdown, verify the tax and insurance figures, and pick the payment option that fits your budget.
Final Thoughts
A 20-minute phone call can be worth hundreds of dollars.