You closed last year. The rate you locked is still your rate. Then a letter arrives: your monthly payment is going up $127. Or $84. Or $203. The reason line says escrow shortage.
This is not a mistake. It's how escrow accounts work. And you can see exactly why it happened by typing your new numbers into the Purchase calculator.
What your escrow account actually does
Every month, part of your mortgage payment goes into an escrow account. Your servicer uses that account to pay your property taxes and homeowners insurance when they come due. You don't have to write those big checks yourself. The servicer handles it.
The catch: escrow is based on estimates. When you closed, your lender estimated what your taxes and insurance would cost. They divided those estimates by twelve and added that amount to your monthly payment.
Estimates are not guarantees.
Why the estimate was wrong
Two things can change after closing.
Property taxes go up. If you bought in Cook County, your assessed value might have been based on the prior owner's exemptions you don't qualify for. The tax bill your servicer received is higher than the one they budgeted for.
Insurance premiums increase. Carriers adjust rates every year. If your area had more claims, or if replacement costs rose, your renewal premium might be $200 or $400 higher than last year's policy.
Your servicer runs an escrow analysis once a year. When they compare what's actually due against what's in the account, they find a shortage. By default the servicer spreads the shortage over at least twelve months. You can pay it in one check instead.
That's the payment increase.
See the math yourself
Open the Purchase calculator. Fill in your loan details:
- Loan Type (Conventional, FHA, or VA)
- Home Price (your purchase price)
- Down Payment (what you put down)
- Credit Score (your range at closing)
- Loan Term (30-year, 15-year, etc.)
- Starting rate assumption (the rate you actually locked)
Now look at the tax and insurance fields:
- Annual Property Tax
- Annual Insurance
First, type in the original estimates from your closing disclosure. Note the Total Monthly Payment.
Then, type in the new numbers from your escrow shortage letter or your actual tax and insurance bills. Watch Total Monthly Payment change.
The Principal & Interest line stays the same. Your rate didn't move. But the Property Tax and Homeowner's Insurance portions of the payment did. That's the new escrow deposit. Your letter will be higher than this for about a year, because the servicer also collects the shortage that already built up. After that catch-up year, the calculator number is what you should expect.
The breakdown shows each piece: Principal & Interest, Property Tax, Homeowner's Insurance, PMI if applicable, HOA Fees if you have them. You'll see which line moved.
What you can do about it
Check your tax assessment. If the county reassessed your property, you may be able to appeal. In Cook County, appeals have deadlines. Missing them means waiting another year.
Shop your insurance. You're not locked to your current carrier. Get quotes. If you find a lower premium, your escrow payment drops at the next analysis.
Pay the shortage in a lump sum. If you'd rather not see the monthly increase, most servicers let you write a one-time check to cover the shortage. Your monthly payment stays closer to the original amount.
If you want a second pair of eyes
Get In Touch. Jeff Shin, NMLS #1041652, originates from Chicago with Barrett Financial Group, L.L.C. He can walk through the escrow analysis letter with you and help you decide whether to appeal, shop insurance, or just budget for the new payment.
A calculator result isn't a commitment to lend. A blog post can't lock a rate.
Jeff Shin, NMLS 1041652. Barrett Financial Group, L.L.C. Chicago. Equal Housing Lender. Not a commitment to lend.