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Aggregate Adjustment: Definition And How It’s Calculated

2-Minute Read
Published on April 19, 2022

An aggregate adjustment is a calculation put into place on your escrow account to make sure that just the right amount is collected from you monthly in escrow. The federal government does not allow lenders to withhold more money in the account beyond what is necessary in order to keep a positive balance in your escrow account and also to avoid a negative balance.

We'll answer your main question, "What is an aggregate adjustment?" (Don't worry, the aggregate adjustment definition is less complicated than it sounds!) We'll also show you how to calculate your aggregate adjustment.

What Is An Aggregate Adjustment?

Aggregate adjustment meaning can be summed up like this: An aggregate adjustment is calculated to ensure that mortgage lenders collect the right amount for a borrower’s escrow account. The amount a lender can collect is limited under the Real Estate Settlement Procedures Act (RESPA) – before closing, your lender will calculate the maximum amount allowed to be collected in reserves for your property tax and homeowners insurance escrow account.

However, you may notice differences between the Loan Estimate and the Closing Disclosure in a real estate transaction. A lot can change between receiving these two documents, and that's when the aggregate adjustment might show up on the Closing Disclosure, which is the document that outlines the final details of your mortgage agreement.

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Aggregate Adjustment And Your Escrow Account

An escrow account is a type of account in which your mortgage servicer takes a portion of every mortgage payment to cover property taxes, homeowners insurance and more. An aggregate adjustment always works to your advantage.

You benefit from this checks and balances system because RESPA states that no more than 1/6th of your total annual payments can stay in your account as a cushion. In other words, you won't have to worry about overpaying your escrow account.

How An Aggregate Adjustment Is Calculated

The Consumer Financial Protection Bureau (CFPB), RESPA and the U.S. Department of Housing and Urban Development (HUD) are involved in deciding and enforcing the maximum amount allowed to be collected by lenders, but home buyers can calculate the aggregate adjustment themselves. Here's how to do it.

First, create 12 rows on a spreadsheet.

Next, list all payment amounts for property taxes and insurance that should come out of the escrow account for the full year and divide by 12. This figure is the amount you will pay into escrow monthly.

Next, put this figure on each line as a credit and subtract the month's expenses – the escrow deposit minus your monthly payments.

Keep this exact result for the first month. For all months after the first, add positive results or subtract negative results from the amount you arrived at from the previous month.

Once you're finished with the entire 12-month column, look at the balances. Are they positive or at exactly $0? Again, under federal rules, they cannot be more than 1/6th of the total figure of your monthly escrow amount.

If you find that the "cushion" is adequate, you don't have to implement an aggregate adjustment on the escrow account. However, you may need to add more upfront money to avoid a negative balance, which means looking at the month that carries the largest negative balance and turning it into a positive number – your aggregate adjustment.

The Bottom Line

Borrowers should feel confident that their lender is putting their best interests first, and the aggregate adjustment does just that. It ensures that you aren't paying too much or too little toward your escrow account.

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Melissa Brock

The Quicken Loans blog is here to bring you all you need to know about buying, selling and making the most of your home. Whether you’re thinking about becoming a homeowner, selling your current home or looking to keep your place in tip-top shape, our writers and freelancers bring their experience and expertise to meet you right where you are.