Your escrow statement says the payment is going up. Enter the numbers from it to see the new payment, what paying the shortage in full changes, and whether the cushion follows the federal limit.
Your payment
$
$
$
From your escrow statement
$
$
$
months
$
Your new payment
New monthly payment while the shortage is repaid
$0
Increase from last year
$0
Last year's monthly payment—
Monthly escrow last year—
Monthly escrow now (new bills ÷ 12)—
Shortage repayment per month—
Payment if you pay the shortage in full—
Payment after the shortage is repaid—
Higher tax / higher insurance, per month—
Shortage vs. one month of escrow—
Largest cushion allowed (1/6 of yearly bills)—
Your statement's cushion—
Your monthly paymentBefore, while the shortage is repaid, and afterHow this is calculated
Monthly escrow = (yearly property tax + yearly homeowners insurance) ÷ 12, for last year's and the new bills. Shortage repayment = shortage ÷ months spread (Regulation X, 12 CFR 1024.17: at least 12 months for a shortage of one month's escrow payment or more).
New payment = principal and interest + new monthly escrow + shortage repayment. Paid in full: principal and interest + new monthly escrow. Increase = new payment − last year's payment.
Shortage vs. one month = shortage ÷ new monthly escrow. Largest cushion allowed = new yearly bills ÷ 6 (12 CFR 1024.17(c)(1)).
Each year your servicer projects the next 12 months of property tax and insurance bills. Your new monthly escrow deposit is one-twelfth of those bills. Under the federal escrow rule (Regulation X, 12 CFR 1024.17), a shortage is "an amount by which a current escrow account balance falls short of the target balance at the time of escrow analysis". It usually appears when bills rose during the year, so the account paid out more than it collected.
What the servicer may do depends on the size of the shortage. If it is smaller than one month's escrow payment, it can let it stand, ask you to repay it within 30 days, or spread it over at least 12 months. If it is one month's escrow payment or more, it can let it stand or spread it in equal monthly payments over at least 12 months. The cushion it keeps can be no more than one-sixth of the year's estimated bills, and a surplus of $50 or more must be refunded within 30 days if you are current. Many servicers also let you pay a shortage in full; that lowers your payment right away but saves no interest, because escrow is not a loan.
Common questions
Why did my mortgage payment go up with a fixed rate?
Your principal and interest are fixed, but the escrow part for property tax and insurance follows the bills. In the example, bills rising from $6,000 to $6,900 a year add $75 a month, and repaying a $900 shortage over 12 months adds another $75, so the payment goes from $2,635 to $2,785, then down to $2,710.
Should I pay my escrow shortage in full?
It does not save money: escrow earns and costs no interest, so you pay the same $900 either way. Paying it in full only lowers the monthly payment sooner ($2,710 instead of $2,785 in the example). Choose based on your cash.
Can my servicer make me pay the shortage all at once?
Not if the shortage is one month's escrow payment or more: then Regulation X allows only letting it stand or equal monthly payments over at least 12 months. A shortage smaller than one month's escrow can be billed within 30 days.
How do I know if my escrow cushion is too high?
Divide your new yearly tax and insurance bills by 6. The required minimum balance (cushion) on your statement should not be above that. In the example, $6,900 ÷ 6 = $1,150.