Property Taxes and Escrow – What You Should Know

A young couple discussing their mortgage payment in front of their laptop at home.

Many counties mail property tax bills in November. If your property tax assessment has changed, you might notice an impact on your escrow account. Here’s why that happens, and what you can do to prepare.

What is Escrow?

An escrow account is a special account held by a lender or loan servicer into which you, the homeowner, pay money for property taxes and homeowners’ insurance. Your monthly mortgage payment includes an amount designated for your escrow account, approximately 1/12 of the anticipated total annual tax and insurance due. The amount is calculated based on a projection of your expected tax and insurance expenses for the next year.

Each year you should receive a property tax bill (or copy of the bill) from your county treasurer.  If your mortgage loan is serviced by HomeLoanServ, we will receive the same information electronically and will pay your taxes from your escrow account.

For additional help watch this video: Understanding your escrow account.

What is an Escrow Shortage?

Sometimes, rising property taxes mean that the previous year’s escrow estimate fell short.

When home prices rise, property assessors evaluate your home value accordingly and property taxes can go up. If your escrow balance is not enough to cover the full amount owed, it’s called an escrow shortage.

Learn more about property taxes and how your home is assessed by reading What Goes Into My Property Taxes

If you have an escrow shortage, you will have two payment options:

  1. Pay the shortage amount in one full lump sum. A shortage remittance form will be included with your escrow analysis. Typically, your monthly mortgage payment will still increase but for a lower amount than when choosing option 2.
  2. Pay the shortage amount monthly with your mortgage payment. The shortage will be spread over 12 months and added to the monthly payment.

Knowing that taxes can rise, it’s a good idea to budget for a possible increase to your escrow payments. That way you’ll be ready if you need to handle larger payments in the future or are notified of an escrow shortage.

Tips to be Prepared for an Escrow Shortage

  • Set extra money aside in a savings account each month to cover an escrow shortage.
  • Log into your online account regularly to view transaction history and see any escrow activity.
  • Stay informed about changes to property tax assessments in your area.