What happens when you have an escrow surplus? 

In this article:

• What is an escrow surplus? 
• Why escrow surpluses happen 
• How a surplus affects future escrow calculations 
• How to avoid future surpluses or shortages 

Most homeowners expect to hear about escrow shortages — but an escrow surplus can feel like a pleasant surprise. Seeing a surplus on your annual escrow statement means that more money was collected in your escrow account than was needed to cover your property taxes and homeowners insurance. But what exactly does that mean for you? And what should you do next? 

At Desert Financial, we want you to understand how surpluses occur, how refunds work and how these changes might affect your mortgage payment. This guide walks you through the key details to keep in mind. 

What is an escrow surplus? 

An escrow surplus occurs when the money collected in your escrow account during the year is greater than the amount needed to pay your taxes and insurance. 

Federal rules allow lenders to keep a small “cushion” in your escrow account (typically up to two months of escrow payments), but if the balance is still more than $50 over what is required, Desert Financial will issue a refund. 

If the surplus is less than $50, federal guidelines allow us to leave it in your escrow account to help offset future fluctuations. 

Why escrow surpluses happen 

Surpluses are far less common than shortages, but they can occur for several positive reasons: 

1. Your property taxes decreased. County assessors sometimes lower taxes when: 

• • Property values stabilize or decline 
  • A previous assessment was corrected 
  • Voter-approved levies expire or decrease 
  • Local budgets are adjusted 

Because taxes often make up the largest portion of escrow payments, even a moderate decrease can produce a surplus. 

2. Your homeowners insurance premium went down. Homeowners insurance rates fluctuate. A decrease can occur when: 

• • You receive discounts or credits 
  • Risk changes in your area improve 
  • You update safety features (e.g., install security alarms, replace an old roof) 
  • You switch to a lower-cost provider 

If your premium was lower than expected, your escrow account may end up with an extra balance. 

3. You switched insurance providers and received a refund. If you changed your insurance provider mid-year and deposited the refund into your escrow account, your account may end up with a surplus. This is one of the most common causes of escrow surpluses and often happens when: 

• • The new policy premium is lower 
  • The old policy’s refund boosts your escrow balance 
  • Timing aligns in your favor 

4. Estimated escrow projections were higher than necessary. During your annual analysis, Desert Financial estimates how much escrow will be needed based on the previous year’s bills. If your actual taxes or insurance end up being lower than the estimate, you may end up with a surplus. This can occur due to: 

• • Conservative insurance projections 
  • Lower-than-expected tax increases 
  • A reduction in county or city assessments 

What happens after a surplus is found? 

Your annual escrow statement will clearly show your escrow balance and any resulting surplus. Depending on the amount, one of three things will happen: 

1. Surplus of $50 or more —you receive a refund check 

Federal guidelines require lenders to issue a refund if your account has more than a $50 surplus after the annual analysis. Your refund will be: 

• Mailed as a physical check 
• Sent to your address on file 
• Typically included with or shortly after your escrow analysis statement 
• Yours to keep — no repayment required 

You can deposit the refund into your bank account or, if you’d like, you can deposit it back into your escrow account to help keep your balance higher for next year. 

2. Surplus under $50 —funds stay in your escrow account 

If the surplus is less than $50, the amount remains in your escrow account. Why? Regulations allow lenders to maintain a small buffer in escrow accounts to help prevent potential shortages the following year. This helps: 

• Keep your escrow cushion healthy 
• Minimize future shortages 
• Reduce payment swings year-over-year 

3. Your monthly payment may still change 

Even if you have a surplus, your total mortgage payment may still change based on future projections. That’s because: 

• Next year’s estimated tax or insurance amounts may be different. 
• Surpluses reflect last year’s activity, not next year’s needs. 

A surplus simply means last year’s deposits exceeded last year’s expenses — but it does not guarantee lower costs in the future. Your escrow analysis will show: 

• Your old payment 
• Your new payment 
• How the surplus was applied 
• Next year’s expected escrow contributions 

Should you deposit your surplus back into escrow? 

You’re not required to — but you might want to consider redepositing if: 

• You know your insurance premium is rising. 
• Your property taxes increased this year. 
• You’ve had shortages in the past. 
• You want to build more of a financial cushion. 

Keep the check if: 

• You prefer the cash for savings or home expenses. 
• Your insurance and taxes have been stable. 
• The surplus is small and won’t impact your escrow balance significantly. 

How a surplus affects future escrow calculations 

Remember: A surplus reflects the past year, while escrow calculations reflect the year ahead. So even if you have a surplus today, it could be needed for next year’s: 

• Insurance premiums 
• Property taxes 
• HOA insurance requirements 
• Mortgage insurance changes 

That’s why many members choose to review their escrow statement with our Mortgage Servicing team — we can break down how both the past and future calculations affect your payment. 

How to avoid future surpluses or shortages 

While you can’t control every factor, these steps can help keep your escrow account stable: 

1. Review your insurance renewal each year. Rate changes are one of the top causes of escrow adjustments. 
2. Deposit any old policy refund checks into your escrow account. This helps keep your balance accurate and predictable. 
3. Monitor county tax announcements. Assessors often issue notices before changes take effect. 
4. Avoid mid-year insurance switches unless necessary. Timing matters — multiple transitions can create both shortages and surpluses. 
5. Call us if you’re planning a significant home improvement. Changes in value can sometimes affect taxes over time. 

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: 

• You’re unsure why you received a surplus. 
• Your refund amount doesn’t match what you expected. 
• You want to understand how your surplus affects next year’s payment. 
• You wonder whether you should deposit the refund back into your escrow. 
• You see both a surplus and a payment increase.