Escrow Shortage
An escrow shortage occurs when your escrow account does not have enough funds to cover the upcoming property tax and insurance payments, typically due to increases in those costs.
When a shortage is identified during your annual escrow analysis, the servicer will adjust your monthly payment to cover the shortfall. You may be given the option to pay the shortage as a lump sum or spread it over the next 12 months.
An escrow shortage is not a mistake or a penalty. It is a natural result of rising property taxes or insurance premiums. It does not affect your interest rate or loan terms.
Why This Matters: Escrow shortages are one of the most common reasons borrowers see an unexpected increase in their monthly payment. Knowing how they work — and how to respond — keeps you in control of your budget.
Common question
What causes an escrow shortage?
An escrow shortage usually happens when property taxes or homeowners insurance increase. The account no longer has enough to cover the next bill, so the servicer adjusts your payment.
Do I have to pay an escrow shortage in full?
Often you can pay the shortage in a lump sum or spread it over the next 12 months. Your servicer will explain the options in your escrow analysis notice.
Related Topics
Related Mortgage Terms
Dealing with an escrow shortage? We can explain your options for paying it off.
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