Understanding Escrowed Accounts

Understanding this table named the Accounts Projections in the escrow disclosure will go a long way in helping you explain what is going on with an escrow account when you are assisting a borrower. In the tables below I will highlight by underlining important values to note when explaining a breakdown.?

• The Month column represents the month in which a monthly contribution is paid into the escrow account.?
• The Description column shows the specific escrow item being paid for.?
• The Monthly Contribution column shows the monthly contribution, in this case, $200, a twelfth (1/12) of the total yearly escrow expenses, i.e., taxes and insurance which in the example below is $2,400.?
• The Disbursements column shows the estimated amount to be disbursed for the described escrow item.??
• The Actual Balance shows the balance at the beginning of the analyzed period.?
• The Minimum Required Balance column accounts for Federal Law (RESPA)’s allowance for a lender to keep two escrow payments, in this case, $400 because one escrow payment is $200.?
• ?The Difference column helps us determine whether the account is balanced, has a shortage, or an overage.?

Example 1 (Balanced Escrow)?

In example 1 we see the escrow cycle began with a $1000 balance. During the escrow cycle, our lowest actual balance is $400. One escrow payment is $200 so two of these make $400 which is our RESPA required minimum balance hence the difference being $0. Therefore, the escrow account is balanced.??

Given a PI payment of $300 borrowers' payment breakdown would be as follows.?

PI?$300 + Escrow?$200?+ Shortage?$0?= Total?$500??

Example 2 (Escrow Shortage)?

In example 2 we see the escrow cycle began with a $0 balance. During the escrow cycle, our lowest actual balance is -$600. One escrow payment is $200 so two of these make $400 which is our RESPA required minimum balance hence the difference being -$1000. Therefore, the escrow account has a shortage. There are two ways of dealing with a shortage, either borrower could pay the total shortage and the payment breakdown would be the same sain example 1 or the shortage could be spread out in multiples of 12 months.???

If the shortage is spread out over 12 months ($1,000/12 = $83.33) and given a PI payment of $300 borrowers' payment breakdown would be as follows.?

PI?$300?+ Escrow?$200?+?Shortage?$83.33?=?Total $583.33??

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Example 3 (Escrow Overage)?

In example 3 we see the escrow cycle began with a $2000 balance. During the escrow cycle, our lowest actual balance is $1400. One escrow payment is $200 so two of these make $400 which is our RESPA required minimum balance hence the difference being $1000. Therefore, the escrow account has an overage. Any overage above $50 will be disbursed to the borrower.???

Given a PI payment of $300 borrowers' payment breakdown would be as follows.?

PI?$300?+ Escrow?$200?+?Shortage?$0?=?Total?$500??