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Escrow
What Is an Escrow Account?
An escrow account, sometimes called an impound account, is money the mortgage servicer holds to pay certain property bills. The Consumer Financial Protection Bureau says the money comes from a portion of the monthly mortgage payment, so those bills are not one or two large payments a year. This page says what the account is. The escrow analysis page is where shortage, deficiency, surplus, and the yearly statement are unpacked.
By the YourHomeCosts editorial desk. Last updated . General information, not personal advice.
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.
What the account pays
The CFPB’s escrow page, last reviewed September 11, 2024, says many lenders require taxes and insurance to be paid through escrow so the bills get paid. The servicer manages the account and pays those bills. Sometimes the law requires an escrow account. Property taxes and insurance premiums can change from year to year, and the escrow part of the payment changes with them.
Escrow is not principal and it is not interest. Adding money that the servicer holds for a future tax or insurance bill does not pay the loan down. Principal and interest are the loan. The full-payment calculator adds the monthly tax and insurance figures you type to principal and interest.
If the loan has no escrow
The same CFPB page says that without an escrow account you have to pay the large bills yourself. Unpaid property taxes can bring fines, penalties, or a tax lien, and can lead to foreclosure. If taxes or insurance go unpaid, the lender may add the amounts to the loan balance, add an escrow account, or buy insurance and bill you for it. The CFPB says that lender-purchased coverage, called force-placed insurance, is typically more expensive than insurance you buy yourself.
The page also says you can ask for an escrow account even when the lender does not require one. Whether the servicer must agree is a question for that servicer and the note.
The one-sixth cushion
Under 12 CFR 1024.17, a servicer generally may not require a cushion larger than one-sixth of the estimated total annual escrow disbursements. The CFPB’s cushion page describes that limit. One-sixth is two months of those bills. The monthly deposit for the bills themselves is a separate figure: up to one-twelfth of the annual disbursements the servicer expects to pay. Some states and some notes use a lower cushion. The federal figure is a ceiling, not a bill this site can quote for your loan.
This is an example, not your analysis. If the servicer expects to pay $2,400.00 in the year, one-sixth of that total is $400.00 and one-twelfth is $200.00 a month. Those two numbers answer different questions: the cushion is the low point built into the projection, and the monthly deposit funds the bills. Estimates only; your lender's numbers win.
The yearly analysis
For most mortgages with escrow, the servicer sends an annual escrow statement. It looks at what was collected, what was paid, and the deposit for the coming year. A shortage, a deficiency, and a surplus are different results, and the collection rules are not the same. A surplus of $50 or more has its own refund timing in that regulation. The escrow analysis explainer walks through those rules and how to read the statement.
If the payment changed, the analysis is the page that separates a higher tax or insurance bill from a shortage being collected. The payment explainer takes the figures from a statement you already have.
Questions people ask
What is an escrow account on a mortgage?
The CFPB describes it as an account the lender sets up to pay certain property-related expenses, funded by part of each monthly mortgage payment. It is also called an impound account in some places. The servicer pays the bills from that account.
How large can the escrow cushion be?
12 CFR 1024.17 generally caps the cushion at one-sixth of the estimated total annual escrow disbursements. That is about two months of those bills. A state or a note can require a smaller cushion. The monthly collection for the bills is up to one-twelfth of the annual amount.
Where is the shortage and surplus explanation?
On the escrow analysis page. That page separates a shortage from a deficiency and a surplus, including the $50 surplus refund rule and the 12-month shortage collection rule in 12 CFR 1024.17.
Sources checked October 19, 2026
A short note when the guides change
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