What is an Escrow Account?
Your escrow account is maintained by VMLS in order to collect enough funds throughout the year to pay your annual Taxes and Insurance. Under the terms of your mortgage, VMLS is required to collect these funds from you. When you pay your mortgage each month, a portion of that payment goes towards your escrow account.
When is the Escrow Analysis?
VMLS will conduct an annual Escrow Analysis in February each year. You will receive the results of the analysis by early March of each year and your payment will adjust depending on that analysis as of April 1 of each year.
What is an Escrow Analysis?
An Escrow Analysis is a review of your escrow account to determine if we are collecting enough funds or too much funds to keep your escrow account healthy. This analysis will most likely increase or decrease your payment each year. We cannot predict the future, so we use the amount we paid in the last year for your Tax and Insurance as the projected amount to pay in the next year. There are 3 main calculations involved in an Escrow Analysis.
- Regular on-going escrow payment. This amount is pretty simple. We add up all projected escrow disbursements for the next year and divide by 12. This gives the amount to pay each month for the next 12 months to keep your escrow account healthy per the projections. Each year's changes to your Tax and Insurance billing amounts will also change your regular on-going escrow payment.
- Required Minimum. We do not want your escrow account to dip below zero so there is a built in cushion to help fund changes in the actual amount billed from the projected amount. The cushion is calculated by adding your projected Tax and Insurance disbursements and dividing by 6. This gives us 2 months of escrow payments to keep as your escrow reserve.
- Surplus or Shortage. In this final step, we use the required minimum balance and find the month your escrow analysis will be at it's lowest point. This Low Point usually aligns with the month of your Homeowner's Insurance or your Property Tax disbursement. The difference in the projected Low Point of your escrow balance and the Required Minimum is the Surplus or Shortage calculation. If we have more money than the Required Minimum projected to be in your escrow account at your Low Point, you have a Surplus. If we have less money than the Required Minimum projected in your escrow account at your Low Point, you have a Shortage.
A Surplus of more than $50 is returned by a check mailed to the mailing address in March of each year. A Surplus of less than $50 is retained and used to reduce your regular on-going escrow payment for the year.
A Shortage will be added to your monthly payment to pay back the escrow account in 12 months. Or you can pay back the shortage in full before May 1 to pay your regular on-going escrow payment.
Why do I have a Shortage?
A Shortage is caused by one of the following changes that was not projected in last year's escrow analysis.
- The amount billed for insurance and/or taxes increased. It is very common for insurance and taxes to increase year after year. Increases in amounts billed also increases the Required Minimum (cushion). We have to fund the cushion in addition to collecting the increases in the amount billed. For questions on why your taxes increased, please contact your local tax assessor's office. For questions on why your insurance increased, please contact your insurance company.
- The timing of billing for insurance and/or taxes changed. If we were billed a month earlier than projected and that changes when the Low Point occurs, it can cause a shortage. This is because we are receiving less payment into your escrow account at the time of billing. Remember a shortage is all about your balance at the Low Point.
- You changed insurance providers. This can cause multiple disbursements for insurance coming out of your escrow account as well as changing the timing of the insurance billing. If you received a refund from your previous insurance provider and did not return the funds to your escrow account, we disbursed an additional insurance payment that was not projected in last year's analysis.
What is the difference between a Shortage and Deficiency?
You may see the word "Deficiency" on your escrow analysis as an amount due in addition to a Shortage. The Deficiency is the negative amount of the escrow balance. A Deficiency occurs because we continue to pay Insurance and Tax bills received for your account even if you do not have enough funds in your escrow account to pay those bills. A Deficiency is treated the same as a Shortage for repayment options.
Click on the Escrow Analysis Guide to read more information about the process and to see pictures of what you will receive in the mail.