Your escrow payment is going up because at least one of the bills your servicer pays from that account — property taxes, homeowners insurance, or mortgage insurance — came in higher than projected at the last annual analysis, and the servicer is now collecting enough each month to cover the new amount plus any shortfall from last year. Usually more than one of those factors is moving at once, which is why the increase can feel out of proportion to any single bill.
Your annual escrow statement lists the projected disbursements for the year ahead. Compare those figures to your actual tax and insurance bills, and the reason for the increase is almost always sitting in that comparison.
Property Taxes Went Up
Property tax is one of the largest items paid from escrow, and it depends on two moving pieces: your home’s assessed value and the tax rate set by local authorities. Either can rise independently, and both can rise together. A municipality that raises the millage rate to fund schools, parks, or infrastructure pushes every homeowner’s bill up. A reassessment that raises your home’s value on paper increases your share of the tax burden even if the rate stays flat.
Assessment cycles vary. Roughly 37 states reassess property at least once every three years, and 27 of those reassess annually. When a home is sold, the purchase price often resets the assessed value, which can produce a significant jump compared to what the previous owner paid. That new valuation becomes the baseline for future escrow calculations, so buyers frequently see a noticeable escrow increase within the first year or two of ownership.
Even a modest change adds up. A home assessed at $350,000 with a combined millage rate that rises by two mills owes an extra $700 per year in taxes, or about $58 more per month flowing through escrow, before any adjustment to the cushion.
If You Think the Assessment Is Too High
You can appeal. Most jurisdictions start with an informal discussion at the assessor’s office, where you present comparable sales data or point out errors in the property record such as wrong square footage. If that does not resolve the issue, you can file a formal petition with a local review board. Deadlines are strict and vary by location — many areas give homeowners only 30 to 90 days after the assessment notice arrives. A successful appeal lowers the value your tax bill is based on, and the reduction flows into your next annual escrow analysis.
Exemptions You May Not Have Claimed
If the home is your primary residence, you may qualify for a homestead exemption that reduces the portion of your property’s value subject to taxation. Some take the form of a flat dollar amount subtracted from the assessed value; a $25,000 exemption on a $300,000 home means you are taxed on $275,000. Others reduce the assessed value by a set percentage. Additional credits exist in many places for seniors, veterans, or disabled homeowners, and those often lower the tax bill directly rather than the assessed value.
Filing for an exemption you qualify for but have not claimed is one of the simplest ways to cut your escrow payment. Contact your county assessor to check eligibility. Some jurisdictions require only a one-time application; others require periodic renewal.
Your Insurance Premium Went Up
Homeowners insurance premiums are the second major driver. Insurers raise rates to keep pace with rising construction and labor costs — if it costs more to rebuild your home today than it did last year, the premium reflects that. These market-wide adjustments affect nearly all policyholders regardless of individual claim history.
Regional factors matter too. Areas with more frequent severe weather or wildfire risk often see steeper increases. On the personal side, losing a multi-policy discount, removing a security system, or filing a claim can all push a renewal higher. Adding coverage such as a flood or earthquake rider raises the premium as well. Whatever the reason, when the insurance bill arrives at the mortgage company with a larger balance than projected, your servicer raises the monthly escrow collection to cover the gap.
Watch for Force-Placed Insurance
If your homeowners policy lapses or provides insufficient coverage, your servicer can buy a policy on your behalf and charge you through escrow. Force-placed coverage is typically far more expensive than a standard policy and provides less protection. Before charging you, the servicer must send a written notice at least 45 days ahead and then a reminder, giving you time to secure your own policy.1eCFR. 12 CFR 1024.37 – Force-Placed Insurance
If you send proof of your own coverage, the servicer must cancel the force-placed policy within 15 days.2Office of the Law Revision Counsel. 12 USC 2605 – Servicing of Mortgage Loans and Administration of Escrow Accounts Until that happens, the inflated premium keeps flowing through escrow. Continuous coverage is one of the easiest ways to avoid a surprise spike.
PMI Is Still on the Loan
If you put less than 20 percent down, your lender likely required private mortgage insurance, and that premium is often collected through escrow. PMI can be removed, and removing it drops that line item from your account entirely.
You can request cancellation in writing once your principal balance reaches 80 percent of the home’s original value — based on either your amortization schedule or actual payments — as long as you have a good payment history, are current, and can show the property has not lost value. If you do not request cancellation, your servicer must automatically terminate PMI once the balance is scheduled to reach 78 percent of the original value, provided you are current.3Office of the Law Revision Counsel. 12 USC 4902 – Termination of Private Mortgage Insurance
If your home has appreciated significantly, ask your servicer what documentation it needs; many lenders will accept a new appraisal to confirm the equity threshold. FHA-insured loans handle mortgage insurance differently and generally do not allow cancellation on the same terms.
Why the Payment Jump Feels Bigger Than the Bill Change
Two things stack on top of your new monthly payment: a larger cushion and, often, repayment of last year’s shortage.
Federal law lets your servicer hold a reserve on top of what it needs to pay the bills. That cushion is capped at one-sixth of total annual escrow disbursements, or roughly two months of escrow payments.4eCFR. 12 CFR 1024.17 – Escrow Accounts Because the cushion is proportional to your total costs, it grows when those costs grow. A $600 increase in annual taxes raises the allowable cushion by $100. You pay the higher tax bill and fund a slightly larger reserve at the same time.
The bigger factor is usually a shortage. A shortage means the escrow account balance was below its target at the time of the annual analysis — the servicer collected less than the bills ended up costing. If the shortage is less than one month’s escrow payment, the servicer can ask you to pay it within 30 days or spread it over at least 12 monthly installments. If it equals or exceeds one month’s payment, repayment must be spread over at least 12 months, and the servicer cannot demand a lump sum.5eCFR. 12 CFR 1024.17 – Escrow Accounts
For loans backed by Fannie Mae, the default is more generous: the shortage is spread over 60 months unless you choose a lump sum or a shorter period of at least 12 months.6Fannie Mae. B-1-01, Administering an Escrow Account and Paying Expenses If your loan is Fannie Mae-backed and your servicer is only offering 12 months, you may be entitled to a longer spread.
Here is where the math surprises people. If your annual tax bill rose by $1,200, the base escrow collection goes up about $100 a month. If that same increase also produced a $1,200 shortage repayable over 12 months, another $100 a month gets added on. Your total increase is $200, not $100. The repayment portion is temporary and drops off once the shortage is paid, though new cost increases in the next cycle often keep the payment from returning to its previous level. Paying the shortage as a lump sum, if the budget allows, avoids the temporary add-on and keeps monthly payments more predictable.
Check for Servicer Errors
Before you accept the new payment, verify the numbers on your annual escrow statement. Your servicer must send that statement within 30 days of the end of each computation year, showing the history of payments in and disbursements out along with projections for the year ahead.4eCFR. 12 CFR 1024.17 – Escrow Accounts Compare the projected tax and insurance figures against your actual bills. A missing homestead exemption, an outdated insurance premium, or a stale tax amount can inflate the collection.
If you find a mistake, file a written notice of error with your servicer at its designated dispute address, which is usually different from the payment address and is listed on your mortgage statement or the servicer’s website. Include your name, account number, and a clear description of the error. The servicer must acknowledge in writing within five business days and then has 30 business days to investigate and either correct the account or explain why it is accurate.7Consumer Financial Protection Bureau. 12 CFR 1024.35 – Error Resolution Procedures Send it by certified mail and keep copies.
One specific error worth flagging: if a late fee appears on your tax or insurance bill because the servicer missed a deadline, you should not be paying it. Federal law requires servicers to credit late charges and penalties caused by their own errors and correct the account.2Office of the Law Revision Counsel. 12 USC 2605 – Servicing of Mortgage Loans and Administration of Escrow Accounts
What You Can Do to Lower It
You cannot control every factor, but several moves can reduce what you pay.
- Appeal your property tax assessment if comparable homes are valued lower. Move fast; appeal windows are typically short.
- Claim every exemption or credit you qualify for — homestead, senior, veteran, disability. Contact your county assessor to check eligibility.
- Shop homeowners insurance at least once a year. Premiums for the same coverage vary significantly, and discounts for bundling, security systems, or a higher deductible can bring the number down. Note that your lender may require specific coverage levels, so you cannot drop below those without servicer approval.
- Cancel PMI once your loan balance reaches 80 percent of the original value. Request it in writing.3Office of the Law Revision Counsel. 12 USC 4902 – Termination of Private Mortgage Insurance
- Pay any shortage as a lump sum if you can absorb it. That eliminates the repayment add-on inflating your monthly bill.
- Ask about an escrow waiver. Conventional loans backed by Fannie Mae or Freddie Mac may allow you to manage tax and insurance payments yourself if you have sufficient equity (generally at least 20 percent) and meet credit requirements. FHA-insured loans do not offer this option. Waiving escrow means you are responsible for paying every bill on time, and some lenders charge a fee to set it up.