If you do not what an Escrow Account is then read my Post : What is an Escrow Account?
What is an Escrow Analysis? Your lender (or the company who services your escrow account), will run a report generally every 12 months. The purpose is to compare the amount of money being put INTO the account through your monthly payments vs. the money being PAID OUT, for taxes and insurance.
How is this done? The lender takes the current balance of your escrow account, and estimates the next 12 months worth of tax and insurance payments. Their estimates also include a "projected" increase in costs; based on the fact that taxes and the cost of insurance generally increases. Also added in is a "cushion" (the maximum allowed by law is 1/6 of the total or 2 months worth of escrow payments).
What happens if my taxes & insurance did not go up as projected or went down? You should be refunded the difference in a few weeks after the analysis.
If my taxes went up more - will my payment increase? Most likely YES. If it is calculated that the "low-point" of your balance is below the 'required' amount - lenders typically give you 1 of 2 options. Make a lump sum payment to increase your escrow balance or the more common, increase in your monthly escrow payment.
Here is an example:
In this example: The projected Balance is HIGHER than the REQUIRED (cushion) balance. The Homeowner gets a refund of $158.33 AND the monthly escrow payment is decreased to $181.05.
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