After years of faithfully making your mortgage payments, you might be surprised to receive a check in the mail from your escrow account. If you don’t remember much about escrow from your closing paperwork, you’re not alone. So why are you suddenly getting a refund? Here’s what you need to know.

What Is an Escrow Account?

An escrow account is a third-party-managed savings account that your lender typically requires to cover certain homeownership expenses. When you closed on your home, you likely prepaid some costs, such as property taxes and homeowners’ insurance, which were deposited into this account. Each month, a portion of your mortgage payment goes into the escrow account to ensure these bills are paid on time.

How Does an Escrow Account Work?

Escrow accounts are designed to simplify your finances and protect both you and your lender. Along with your mortgage principal and interest, the account collects enough each month to cover:

• Annual property taxes
• Homeowners insurance premiums

When these bills come due, the escrow company pays them directly on your behalf, ensuring they’re never late or missed.

What Is an Escrow Refund?

Each year, your escrow account is reviewed through a process called an escrow analysis. If the analysis shows your account holds more money than necessary to cover your projected expenses, federal law requires the lender to refund the excess within 30 days.

Common reasons you might receive an escrow refund include:

• A decrease in property taxes
• Switching to a less expensive homeowners’ insurance policy
• Refinancing your mortgage and closing your current escrow account
• Paying off your mortgage in full, leaving a surplus in the account

What Happens If My Escrow Account Has a Shortage?

Just as your account can have a surplus, it can also have a shortage, typically when your taxes or insurance premiums increase. If this happens, your lender will notify you of the deficit and offer two options:

• Make a one-time payment to cover the shortfall
• Have your monthly mortgage payment adjusted to make up the difference over time

Final Thoughts

Getting a check from your escrow account might feel like a bonus, but remember—it’s your money being returned. It’s simply a sign that your lender collected more than was needed to cover your home-related expenses.

If you have questions about your escrow account or any other mortgage-related topics, don’t hesitate to contact us today!