Your mortgage payment went up $180 a month, and you did not refinance. You did not change your loan. You did not do anything. A letter arrived from your servicer explaining a routine escrow adjustment, and now you are paying more every month for a home you have already owned for three years.

This happens to hundreds of thousands of homeowners every year, and most are caught off guard the first time. The loan itself did not change. The escrow account did.

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> Your mortgage payment has three components: principal, interest, and escrow. Principal and interest are fixed on a fixed-rate loan. Escrow is not. It adjusts every year based on your actual property tax and insurance costs.

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What an Escrow Account Actually Does

When you have an escrow account, your lender collects a portion of your estimated annual property tax and homeowners insurance premium with every monthly payment. Instead of you paying those bills in two or three large chunks each year, your servicer collects them gradually and pays the bills on your behalf.

At least once a year, your servicer runs what is called an escrow analysis. They compare what they collected against what they actually paid out. If they paid more than they collected, you have a shortage. If they collected more than they paid, you have a surplus.

A shortage results in either a lump-sum bill to cover the deficit or a higher monthly payment going forward to make up the difference and build a small cushion for the year ahead. A surplus usually results in a refund check, though some servicers apply it to the following year instead.

Why Taxes and Insurance Keep Rising

Property taxes are the most common driver of escrow adjustments. Local governments reassess property values periodically, and in areas where home values have increased, tax bills often follow. In many markets, property tax increases of 5% to 15% in a single year are not unusual after a reassessment.

Homeowners insurance premiums have risen sharply in many parts of the country over the past several years. According to the Insurance Information Institute, national average homeowners insurance premiums increased approximately 11% in 2023 alone, with coastal states seeing even larger jumps. When your insurer raises your premium at renewal, your escrow payment has to catch up.

Both factors can move simultaneously. A year with a property tax reassessment and an insurance renewal increase can produce a noticeable escrow jump in a single adjustment letter.

How to Read Your Escrow Analysis Statement

Your servicer is required to send you an annual escrow analysis statement, usually 30 to 45 days before the change takes effect. The statement shows your projected disbursements for the coming year, the cushion your servicer is allowed to hold, and the new monthly payment amount.

Federal law under the Real Estate Settlement Procedures Act (RESPA) limits how much cushion your servicer can require. They can hold up to two months of escrow payments as a reserve but no more. If your escrow analysis shows a cushion larger than that, you have grounds to request an adjustment.

Review these three lines on your statement:

• Projected disbursements: what your servicer expects to pay for taxes and insurance in the coming year
• Escrow balance: what you currently have in the account
• Shortage or surplus: the gap your new payment will address

If any of the projected disbursements seem incorrect, call your servicer before the change takes effect. Errors in the estimated tax or insurance amount happen, and they are fixable if you catch them early.

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> You have the right to request a recalculation if your escrow analysis contains an error. Contact your servicer in writing within 60 days of receiving the statement and ask them to document how they calculated the projected disbursements.

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What to Do When the Increase Feels Wrong

Start by pulling your most recent property tax bill and your homeowners insurance renewal declaration page. Compare those actual figures to what your servicer used in the escrow analysis. If your servicer is projecting a higher tax payment than your county actually billed, that is a discrepancy worth contesting.

If your property was reassessed at a value you believe is too high, you can appeal the assessment directly with your local tax assessor’s office. Most counties have a formal appeal process with a deadline, typically 30 to 90 days after the assessment notice. A successful appeal can reduce your tax bill and, in turn, reduce your escrow requirement the following year.

On the insurance side, if your premium increased significantly at renewal, that is a reasonable time to shop your policy. Switching to a new carrier mid-year can sometimes generate a refund on the unearned portion of your current premium while lowering next year’s escrow projection.

For more on managing the full cost of homeownership alongside your mortgage, see 5 Hidden Tax Benefits Every Homeowner Should Know and Property Taxes Demystified: What You Are Really Paying For.

Questions Homeowners Ask

• What tax benefits can you claim as a homeowner?
• What are you actually paying when your property tax bill arrives?
• How do biweekly payments reduce your mortgage faster?

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