How much extra the servicer may hold
The RESPA escrow cushion, and the 1/6 limit
By the YourHomeCosts editorial desk. Last updated .
Educational information only. This is not financial, tax, legal, lending, insurance, or appraisal advice. Loan documents, state law, and your servicer or assessor control. Confirm every figure before you act.
The cushion is a timing buffer
A cushion, sometimes called a reserve, is extra money in the escrow account so a tax or insurance bill can be paid even if your next deposit has not posted. It is not a fee. It is your money, held for bills the servicer will pay. The reason it shows up in a payment increase is that rebuilding the cushion takes cash in the year they decide the buffer is too thin.
Regulation X limits how large that buffer may be. Under 12 CFR § 1024.17(c)(5), the cushion must be no greater than one-sixth of the estimated total annual disbursements from the account. One-sixth of a year is two months. If the account will pay $6,000 this year, the cushion may not exceed $1,000.
Two months is a ceiling
The regulation does not require a cushion. A servicer may hold one month, or none. The mortgage documents can set a lower cushion, and if they do, the lower number controls. If the documents allow a larger cushion than the regulation, the regulation controls. State law can be stricter still. The number to test against, unless a stricter rule applies, is one-sixth of this year's estimated disbursements.
Aggregate accounting, which servicers must use, builds a trial running balance. The servicer projects each month, brings the lowest month up to zero, and then may add the cushion. The lowest monthly target balance may not exceed one-sixth of annual disbursements. You do not have to rebuild that spreadsheet to ask a useful question. You do have to know the annual disbursement total and the cushion the statement says it selected. The initial escrow statement is required to indicate the cushion.
| Annual taxes and insurance | Maximum cushion (1/6) | Two months of the base deposit |
|---|---|---|
| $3,600 | $600 | $600 |
| $7,200 | $1,200 | $1,200 |
| $10,800 | $1,800 | $1,800 |
What a cushion violation looks like
A statement that requires a $2,400 cushion on $7,200 of annual disbursements is $1,200 over the federal cap. That extra $1,200 is sitting in the account instead of in your pocket, and collecting it can be part of why this year's payment rose. It is a different problem from a shortage. You can be over the cushion cap with no shortage, and you can have a legal cushion with a large shortage.
Do not divide the entire escrow balance by the monthly deposit and call every month above zero a violation. The balance is high just before a tax installment is paid and low just after. The test is the cushion the servicer requires, and the lowest projected target, not a random month's balance that happens to look large.
How to ask for a correction
Write to the servicer and include the annual disbursement total, one-sixth of that total, and the cushion printed on the statement. Ask for the trial running balance and a corrected analysis if the required cushion is higher. Mention 12 CFR § 1024.17(c) and (d). Ask them to point out a lower limit in your note or in state law if they believe the cap is smaller, and to explain the figure if they believe you have misread a shortage as a cushion.
A corrected analysis changes the monthly deposit going forward. It may also produce a surplus. If that surplus is $50 or more and you are current, the surplus rule requires a refund within 30 days of the analysis. The cushion question and the surplus question often arrive as a pair.
- Use this year's estimated disbursements, not last year's payment, as the base.
- Exclude the shortage repayment from the 'two months' you are testing. The cap is two months of the base escrow disbursements.
- After a servicing transfer, compare the new cushion with the old one. A transfer is a common time for the cushion to be reset.
- Keep the response with the statement. The next analysis should not put the same excess cushion back.
Questions people ask about this
Is a two-month escrow cushion always legal?
It is the federal maximum, not a flat approval. Two months of the base disbursements equals one-sixth of the annual total. Your mortgage or your state may require a smaller cushion. Two months is too much only when a stricter limit applies, or when the servicer calculated two months on top of a shortage and called the whole thing a cushion.
Can the servicer hold extra money if I agree?
After an analysis, you and the servicer may agree that you will deposit more than the limit for the coming year. That voluntary agreement covers only one computation year. It does not change how a surplus must be treated at the next analysis. An agreement you did not make is not a reason to exceed the cap.
My escrow balance is large in March. Is that an illegal cushion?
Not by itself. The balance climbs before a big disbursement and drops when the bill is paid. Look at the cushion disclosed on the statement and at the lowest projected monthly target. A high balance in a single month is often just the bill being saved up.
Does the cushion limit apply to every mortgage?
Section 1024.17 applies to escrow accounts on federally related mortgage loans. Some loans do not have escrow. Some older or unusual arrangements are outside the section. If the servicer says the loan is not covered, ask them to say why, and still compare the cushion with the one-sixth figure so you know what you are arguing about.
Sources
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