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What Is Escrow? Answers to Common Questions - Quicken Loans Zing Blog

An escrow account is an account held by a third party who manages the funds. Mortgage escrow accounts are held by your mortgage lender or other escrow holder to pay your property taxes, homeowners insurance and possibly homeowners’ association fees (if you have them). Payments are made to the appropriate parties when they’re due.

Let’s discuss how an escrow account works and why it might be helpful.

What Is an Escrow Account and How Does It Work?

Why should someone else manage your money for you when it’s just easier to do it yourself? When you have a mortgage, you’ll likely have to pay for other home-related bills outside of your mortgage. Appliances break, the air-conditioner loses its will to live on a 95-degree day. Things happen.

If you have an escrow account, whoever manages the account will pay your property taxes and insurance premiums. Instead of these popping up as surprise payments, they’ll break that money down into manageable chunks rolled into your monthly mortgage payment.

How Do I Know If I Have an Escrow Account?

Your banker or loan officer would have discussed the escrow account with you as you were going through the loan process. Also, once you close your loan, your monthly billing statement shows how much of the money you paid went to your escrow account, and you get a yearly escrow analysis showing the details of the account – we’ll talk more about this below.

How Is Escrow Calculated?

So it makes sense to have an escrow account, but how do you know how much money you have to pay into it? All of your insurance and tax payments that will be made over the next 12 months are added together and then divided by 12. That number is added to your monthly mortgage payment so you only have one payment that you have to make each month.

What Is an Escrow Analysis?

An escrow analysis is conducted on a yearly basis. Because payment is due for each item at different times, some months you’ll have a lot of extra money in your account and some months you could actually have a negative balance. To make it more complicated, some types of insurance only have to be paid every three years, which can really mess up your 12-month plan.

To avoid a negative balance, your lender or escrow holder will employ certain tactics. Usually, they’ll have you put an extra two months of escrow payments, called a cushion, in your account. If, after that cushion, the 12-month forecast shows that you’ll be low one month, your escrow payment will be increased enough so that you’ll still have enough money in the account.

You want to make sure that there’s enough money in your escrow account at all times to cover your expenses. Performing an escrow analysis is how you do that. This is done once a year, but you can also request to have one done at another time.

Shortages and Surpluses

In some cases, after an escrow analysis is done, you can actually end up with a surplus or shortage in your account. This could happen if you have an increase or decrease in your property taxes due to a change in your property value. Changes also occur when you switch insurance carriers or policies.

If the analysis finds that you’ve got a surplus in the account, sweet! You’ll receive an escrow surplus check.

If you find that one of these changes causes a shortage in your escrow account, that’s where things start to get a little hairy. If you have a shortage, your escrow payments will increase until the shortage is paid off. Your new monthly escrow payment will take into account the higher taxes and/or insurance premiums.

Escrow doesn’t have to be complicated or scary once you break it down a bit – you could actually get money back from it! Did we answer all of your questions here? Ask your other escrow-related questions in the comments below.

This Post Has 33 Comments



    1. Hi Gerry:

      The part of this that doesn’t quite make sense to me is the fact that they say they’ll return the $21,000 if you gift him $21,000, especially if you’re gifting it to them because they want more than what he already has in escrow for the purchase. I don’t think he’ll get the full amount back if you gift $21,000. If I were him, I would ask them to be very clear on what’s happening here.

      He does have the option to switch. There are two potential downsides to that. The first is that he would likely lose any deposit he’s given the other lender. He would also risk delaying the closing by having to start over and could potentially lose out on the house if he doesn’t close within the timeframe specified in the purchase agreement.

      I think the best thing for him to do might be to call one of our Home Loan Experts and go over all of his options at (888) 980-6716. Hope this helps!


  2. I have been paying $599.00 a month for my mortgage,the county tax assessor raised the value of the house from 96,000 to 104,000 how much will my payment be next year,per month

    1. Hi Tony! I’d suggest reaching out to one of our Home Loan Experts. They’ll be able to take a look at your situation and give you some more information. You can reach them at (888) 980-6716.

  3. Hello. I am a QL customer and I would like to find out some info. I see the escrow balance every month on my statement. If I pay the remaining balance showing there. Does that means my monthly payment will go down for the remaining of the year? Lets say my escrow balance is $700 and i pay it off. Will that mean my monthly payment will go down $100 monthly for the remaining of the year of if i got 7 months left to pay for this year?

    1. Hi Carmen:

      Escrow accounts tend to be somewhat complex. I want to make sure you get the right information. I’m going to get this over to someone on our servicing client relations team.

      Kevin Graham

  4. What is the process when you are unable to reach the insurance provider for the renewal paperwork to pay the renewal on time and then you lapse the insurance coverage on your customer . Now I as the customer was advised today I could be facing a penalty in lapse of insurance because of Quicken Loans® negligence to contact the homeowner until after the due date of the renewal for help. I called Quicken Loans® on February 14th 2017 to verify the payment would be made the following week I was advised yes no payment was made now I still have no insurance and you’re going to penalize me why

    1. Hi Kari:

      I’m going to make sure we get this over to our servicing team to see what’s going on here and see if we can get you back on the right track. I’m sorry you had this experience.

      Kevin Graham

  5. Gee! Escrow sounds so simple – required yearly insurance, taxes etc divided by 12 are added to my monthly mortgage payment. Then why do I have to pre-pay 1 yrs worth of taxes at closing, THEN pay 4 months worth of the same tax in escrow at closing, T-H-E-N pay 1 month escrow for the SAME tax every time I make a payment? Don’t believe me? You should see my loan estimate report 10 days before closing.

    1. Hi Jay:

      Mortgage companies have you prepay a certain amount of escrow up front at closing in order to avoid shortages down the line. I know it can be a lot, but the goal is to save you a headache in the future.

  6. Every three to four months Bank of America goes up ony mortgage and the say it’s because I don’t have enough money in my escrow. Is that normal?

    1. Hi Cynthia:

      Your escrow isn’t analyzed that often because your taxes and insurance don’t change that often. As long as you pay your full mortgage amount including taxes and insurance each month, you shouldn’t be short more than once a year when the property value is reassessed if it’s gone up or you switched insurance carriers. They might be temporarily raising the payment until you pay off a shortage, but it shouldn’t go up every three or four months. I would call and ask them for clarity.

      Kevin Graham

  7. Just out if curiosity
    I been renting my home since July 2016
    Paying $1000 every month
    Having a problem with septic and ac unit
    Owner refuses to fix ANYTHING
    Basically told me to move out he will sell house
    Help….. What do I do?
    I’m a single mom of 3 and 1 on the way

    1. Depending on what your lease says, if he is responsible for maintenance, you could sue for breach of contract. That would require getting a lawyer involved.

      1. I have a lot of respect for QL for a number of reasons. This article is incredibly informative, so thank you for that.

        Otherwise, you know you’re doing well when your employees (i.e. my best bud), who have worked at QL for several years now, continue to rave about the excellence and quality control throughout the company…

        Can’t really say much bad about Quicken; rather, I only hear great things to date.

        Thanks for your work QL (& Mr. Gilbert)


  8. We just refinanced and will be making our first Quicken mortgage payment in August. Meanwhile, we have received a check for the escrow amount we had accumulated so far this year with our old mortgage holder. Don’t we need to deposit that escrow amount into our new Quicken loan escrow account or should we just save that check amount in our regular savings account until taxes are due?? We were assured that mortgage & insurance was included in our monthly loan payment account, but there’s no way that Quicken will accrue enough in the next few months to cover our tax bill for the entire year. HELP!!

    1. Hi Denise:

      I’m going to have someone reach out. They’ll be in contact and we’ll figure this out with you.

      Kevin Graham

  9. I just received my statement and realized that my 2015 township taxes were paid on 1/11/2016. Obviously, I am very unhappy. This payment in 2016 deprives me of my legitimate 2015 tax deduction – a costly error. If I’m late with my mortgage payment, I pay a penalty. I wonder if Quicken is under the same obligation? My suggestion – don’t escrow with Quicken.

    1. Hi Sharon:

      We’re sorry you’ve had this poor experience. We’re currently researching your situation and will be reaching out later today. Thanks for reaching out and giving us the opportunity to look into this.

      Kevin Graham

  10. Hi. I have a question. My parents have a “negative escrow” with their current lender wells Fargo because my mom’s property taxes were deferred due to her being disabled. But for SOME reason (unknown), they paid this even though it is deferred and she only has one year to pay off the 17000. So her mortgage payment went from 890 to 2300. Would quicken loans be able to refinance us? Thanks so much.

    1. Hi Angela:

      We can certainly help you look into your options for refinancing. Whether we can refinance you or not, we might be able to give you some advice for the escrow issue. I’m going to pass your question along to a Home Loan Expert.

      Kevin Graham

  11. I am very unhappy with an escrow account. I have managed my taxes and insurance on previous property for 25+ years and Quicken determined I am no longer capable and forced me to have an escrow account. How long must I keep it before they determine I am responsible enough to take care of my own taxes and insurance? This is one of the reasons I will never recommend Quicken Loans® to anyone.

    1. Hi Marie:

      We never want to hear our clients have had a less than amazing experience with us. Someone will be reaching out tomorrow to discuss your escrow account and any other concerns you might have.

      Kevin Graham

  12. I chose to pay my own taxes and insurance for my primary residence and am happy I chose to do this. Because I am consistent and diligent about saving and holding the funds so I can pay these expenditures, I can negotiate or change insurance or dispute a tax assessment. Can I do this for rental property also?

    What is the lowest price home you will finance as rental property. Do you count your primary residencr into the number of rental properties you can own? Gail E.

    1. Gail:

      That’s a lot of questions. That’s good. You’ll know what you’re doing going into this. I’m going to forward your inquiries to a Home Loan Expert who should be able to answer your questions.


  13. I am so pleased with Quicken Loans®. As they say, “word of mouth travels fast”. Let me tell you I have a BIG mouth. I am trying to convince my son and everyone I know to change their mortgage to Quicken Loans®.
    Here’s a great big Atta Boy and Atta Girl

    Gretchen Hale
    St. Cloud Florida

  14. This notice along with the one sent to is very vague! Why didn’t we get specific as to how and when? For ex… How will it affect individuals that have multiple payments throughout the year? When will their analysis be done? If after each tax payment, will there be a re-calibration after each analysis? Please provide more details!

  15. Am I allowed to remove my escrow account if I have one currently and if so, what is the criteria? I would like to pay my HOI and property tax separately on my own.

    1. Hi Jim!

      To answer best answer your question for your individual situation, I’ve forwarded your question to our Home Loan Experts who will be reaching out to you soon.

      Thanks for reading!

  16. I closed on my mortgage a year ago yesterday. There was a mixup about the check I wrote at closing for my hazard insurance, and it was refunded to me. I thought it was because it was coming out of my escrow account. This has resulted in my house payment going up by $72 a month for the next year. This has created a lot of stress and confusion for me. I hope you will find a solution to this that keeps people from being suddenly hit with it. Otherwise, I love my little house and Quicken has been great to me every time I’ve needed you.

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