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 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 the amount of 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 June 1 to pay your regular on-going escrow payment.
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.