What Is an Escrow Surplus?

What Is an Escrow Account?

An escrow account holds and disperses funds, often as part of a home purchase or mortgage payment plan.

• When you buy a house: An escrow account is typically used to receive money from you and your lender, and to issue payments to the home seller, real estate agents, title and escrow companies, and other relevant parties at closing. The escrow agent holds funds and distributes them according to the home sale contract.
• When you start paying your mortgage: Your lender or mortgage servicing company may set up an escrow account for home insurance and property tax payments. As part of your payment arrangement, your lender may collect one-twelfth of your annual insurance and property tax costs every month, then make payments for you when they come due. While this money accumulates, it's held in an escrow account.

Learn more: What Is Escrow?

What Is an Escrow Surplus?

An escrow surplus occurs when your escrow account holds more money than it needs to make its designated payments. Once a year, your lender or mortgage servicing company will do an escrow analysis to determine whether your current monthly mortgage payments will cover insurance and property taxes in the year to come. If their analysis finds you have a surplus, they may issue a refund to you and adjust your mortgage payment.

Learn more: What Are the 4 Parts of a Mortgage Payment?

Why Do I Have an Escrow Surplus?

You have an escrow surplus because you put more money into escrow than necessary. There are multiple ways this can happen. Here are a few common causes:

• You overpaid at closing. The down payment or earnest money deposit you paid during the escrow period may have been more than what was needed. If so, you'll have an escrow surplus going into your new loan.
• Your property taxes decreased. If your property tax bill dropped but you continued to make payments based on your original tax rate, you'll have an escrow surplus at the end of the year.
• Your insurance premium went down. The same principle applies when your insurance premiums drop or you find new insurance with a better rate. Any extra money you pay in during the year will be left over as surplus when the year ends.
• Your lender miscalculated. If your lender or mortgage servicing company overestimated your property tax and insurance costs, you may end the year with surplus funds.
• You refinanced with a new lender. When you get a loan with a new lender, you get a new escrow account as well. Your old lender will issue a refund of your account balance when your old escrow account is closed.
• You paid your mortgage in full. When you pay off your mortgage, your lender will close your escrow account and refund any money left in it.

Learn more: Mistakes to Avoid When Closing on a Mortgage

What Is an Escrow Surplus Check?

An escrow surplus check refunds excess money left in your escrow account. If your annual escrow analysis shows you have excess funds, your lender will likely issue an escrow refund. In some cases, your escrow surplus check may be attached to or included with your escrow analysis; make sure you read through your escrow analysis carefully when you receive it.

What if you haven't received a check? Lenders typically issue a refund check if your surplus funds add up to $50 or more. If your surplus is less than $50, your lender may keep the funds in escrow as a cushion. Lenders often maintain a few months' payments as a cushion, to ensure they have enough money on hand to cover expenses. Your lender may also hold on to surplus funds if you are not current on your mortgage.

Learn more: What Is an Escrow Shortage and How Can I Fix It?

How to Check if You Have an Escrow Surplus

Review your annual escrow analysis for detailed information about your account. If you're between annual reviews, contact your lender with any questions you have regarding your escrow balance. They may be able to go over your escrow analysis with you, do an additional analysis if needed, adjust your monthly payments or issue a refund if you have a surplus.

Learn more: What Is a Mortgage Statement?

The Bottom Line

Using an escrow account to hold funds and pay for your property taxes and insurance is convenient, and it saves you from having to come up with large payments when these bills are due. Anticipating these costs isn't an exact science, so some escrow surpluses—and, potentially, escrow shortfalls—may occur.

Review your escrow analysis every year to make sure your insurance and property tax bills are being paid, and that your payment amounts are properly calibrated. If there's a significant escrow surplus, you may get a refund check to bring your account into balance.