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Understanding your escrow statement and annual analysis
In this article:
- How your escrow account works
- What to expect during your yearly review
- How escrow shortages and surpluses happen
- What you can do to prepare
Buying a home is one of the biggest financial steps most people take. And for many homeowners, an escrow account is one of the least understood parts of the mortgage experience. If you’ve looked at your escrow statement and wondered what exactly you were looking at, you’re not alone.
At Desert Financial, our goal is to help every member feel confident and informed about how their mortgage works. Your annual escrow analysis is an important part of that. This article breaks down what escrow is, why your payment sometimes changes and how to read your yearly escrow statement with ease.
What is an escrow account?
An escrow account is a special account your lender uses to collect and pay certain home-related expenses on your behalf. Instead of paying your property taxes and homeowners insurance in large, occasional lump sums, you make smaller contributions each month as part of your mortgage payment.
Your escrow account typically covers:
- Property taxes
- Homeowners insurance (HOI)
- Mortgage insurance (if required)
- Flood insurance (if applicable)
These expenses can fluctuate from year to year, which is why the escrow portion of your mortgage payment may change even if you have a fixed interest rate.
Why lenders perform an annual escrow analysis
Every year, Desert Financial conducts an escrow analysis to ensure your account has enough funds to cover your upcoming expenses.
During the analysis, we review:
- Your past tax and insurance bills
- Premium or tax rate changes for the upcoming year
- Your escrow account’s current balance
- Your projected balance for the next 12 months
The goal is to make sure your escrow account stays in a safe range — neither too low nor excessively high.
How an escrow shortage happens
An escrow shortage occurs when your escrow balance isn’t expected to cover next year’s payments. This can happen for a few reasons:
- Property taxes increased.
Cities and counties may adjust tax rates or reassess property values.
- Homeowners insurance premiums went up.
Insurance companies often adjust premiums annually based on market conditions, rebuild costs or claims history.
- You changed insurance carriers mid-year.
If your new policy’s premium is higher — or if refunds weren’t placed back into your escrow — your account balance may be impacted.
- Your previous balance was lower than expected.
If Desert Financial paid a tax or insurance bill that was higher than what had been collected, your escrow balance may dip below the required level.
You will see the shortage amount on your escrow statement. Members can either:
- Pay the shortage in a one-time lump sum, or
- Spread it over 12 monthly payments added to your mortgage payment
Either option is perfectly acceptable — choose what works best for your budget.
How an escrow surplus happens
A surplus means your escrow account collected more than what was needed. This may occur because:
- Your tax bill decreased
- Your insurance premium dropped
- You overpaid during the previous year’s adjustment
If your surplus is $50 or more, Desert Financial will issue a refund check. If it’s under $50, it stays in the account to help offset future changes.
Understanding your annual escrow statement
Your escrow statement generally includes the following sections:
- Previous escrow balance
This shows how much money was in your account at the start of the review period.
- Projected disbursements
These are the estimated payments Desert Financial will make on your behalf in the upcoming year for taxes and insurance.
- Required low balance
Federal guidelines require lenders to maintain a “cushion” to ensure your account never becomes negative due to timing of payments.
- Shortage, surplus or deficiency
This section shows whether your account has a:
- Shortage (you’re projected to be under the required amount)
- Surplus (you’re projected to be over the required amount)
- Deficiency (your account was already negative during the review year)
- New payment breakdown
Your statement will show your old monthly payment and your new monthly payment, including the escrow adjustment.
Why your mortgage payment may change
Even if your principal and interest remain the same, your total mortgage payment may change because escrow-related expenses changed. This is completely normal — and experienced by most homeowners every year.
Common reasons include:
- Property tax increases
- Homeowners insurance premium changes
- Hazard, flood or PMI policy updates
- New construction or reassessment in your area
If your payment goes up, it doesn’t mean anything is wrong with your loan — it simply reflects updated home-related costs.
What members can do to prepare
A few proactive steps can help you feel confident year after year:
- Review your homeowners insurance annually.
Prices can fluctuate — shopping around can sometimes lower your premium.
- Keep an eye on property tax notices.
Local municipalities often announce rate changes in advance.
- Notify Desert Financial immediately if you change insurance.
This helps avoid unexpected shortages or delays in payment.
- Add escrow adjustments to your annual budget planning.
Most homeowners experience small yearly changes — it’s completely normal.
When to contact Desert Financial
We’re always here to support you with clear answers and member-first service. Contact Mortgage Servicing at (602) 433-7097 or firstmortgageservicing@desertfinancial.com if:
- Your new payment doesn’t look right.
- A tax payment or insurance premium seems different than expected.
- You changed insurance providers.
- You’re unsure whether to pay your shortage upfront or spread it over 12 months.
- You’re confused by any part of your annual escrow statement.