Escrow Calculator
Monthly escrow for property tax, home insurance and mortgage insurance, and the total housing payment.
What it does
Property tax and a year's home insurance premium do not arrive in monthly slices. They land as one or two large bills a year. Escrow is the arrangement that smooths them out, and most mortgages with a lender require it. The Consumer Financial Protection Bureau describes escrow as an account your servicer uses to pay property taxes and insurance on your behalf, funded from part of your monthly payment.
The arithmetic is simple. The annual tax bill and the annual insurance premium are each divided into twelve, and the shares are added to your payment. Mortgage insurance, if the loan still carries it, is added on top. That gives the escrow line you see on the statement, which sits next to the principal and interest line and makes up the rest of what you send each month.
There is a rule that keeps the servicer honest. For most mortgages with an escrow account, the servicer may require no more than one twelfth of the annual escrow payments it reasonably expects to make in the coming year. In practice the monthly escrow line is exactly that one twelfth figure, so if your statement shows more than a twelfth of the yearly bills, there is a reason and you can ask for it.
Two things make the number move. Taxes and insurance premiums get reassessed, and when they do the servicer runs an annual analysis and resets the monthly amount. If the account collected more than the bills needed, the surplus comes back to you as a refund. If it collected less, you get a shortage bill, often spread over a year.
This calculator gives you the number your statement should be showing, so you can check it against what you are actually paying. It cannot tell you whether your assessment is correct, whether your coverage is right for the house, or whether your lender's analysis is lawful. It just does the division and adds up the pieces so you can see where the money goes.
How to use
- Get the property tax figure from your county tax bill or from the servicer, and enter the full annual amount.
- Get the homeowners insurance premium from your insurance renewal or dec page, and enter the annual total.
- Add the monthly mortgage insurance if the loan still has private mortgage insurance. Leave it at 0 if the loan does not.
- Enter the principal and interest part of your payment if you want the full monthly housing cost as well.
- Compare the monthly escrow result with the escrow line on your statement.
- If they differ, check whether a mid year tax change or a shortage bill is being spread across the year.
Formula
- annual property tax
- The whole year's property tax, in dollars
- annual insurance premium
- The whole year's homeowners insurance premium, in dollars
- monthly mortgage insurance
- Private mortgage insurance charged each month, in dollars
- principal and interest
- The part of the mortgage payment that repays the loan and pays interest, in dollars
- one twelfth rule
- The cap on how much escrow a servicer may collect in a single month
Dividing by twelve assumes the bill is spread evenly across the year. In some places property tax is billed in instalments at different times of the year, and a servicer with a sufficient reserve can still collect the one twelfth share and pay the bill when it lands. If the escrow account was opened partway through the year, the first payment can be larger because the remaining bills still have to be covered.
Worked example
Example: a $6,240 tax bill and a $1,800 insurance premium
A home with a $6,240 annual property tax, a $1,800 annual insurance premium, $55 a month of mortgage insurance, and $1,450 a month of principal and interest.
- Property tax per month: 6240 / 12 = $520.00.
- Insurance per month: 1800 / 12 = $150.00.
- Mortgage insurance: $55.00 a month, which is $660.00 across the year.
- Total monthly escrow: 520.00 + 150.00 + 55.00 = $725.00.
- Total escrow for the year: 6240 + 1800 + 660 = $8,700.00.
- Total monthly payment: 1450.00 principal and interest + 725.00 escrow = $2,175.00.
- The tax and insurance part, $670.00 a month, is exactly one twelfth of the $8,040 of annual bills, so it sits at the one twelfth cap.
Reference table
| Part of the payment | Typical contents | Paid to |
|---|---|---|
| Principal and interest | Loan repayment plus interest | Lender |
| Escrow for taxes | One twelfth of the annual property tax | County tax authority |
| Escrow for insurance | One twelfth of the annual insurance premium | Insurance company |
| Mortgage insurance | Private mortgage insurance while the loan needs it | Insurer |
Limits
- This is the arithmetic of a standard escrow account, not a statement of what your servicer is allowed to charge in every state.
- It does not include flood insurance, homeowners association dues, sewer charges or other escrowed items.
- It cannot check a tax assessment or an insurance quote, only divide the figures you give it.
- A shortage or surplus in the account changes the payment beyond the simple twelfth, and that is not modelled here.
Common mistakes
- Entering the monthly tax instalment from a bill instead of the full annual bill, which undercounts escrow by a factor of twelve.
- Leaving out mortgage insurance and wondering why the escrow line on the statement is larger.
- Adding escrow to principal and interest twice when the statement already shows a total payment.
- Assuming the escrow line never changes, when it is reset at every annual analysis.
- Ignoring a shortage bill spread over several months, because it looks like a small extra charge rather than part of escrow.
Try it yourself
Quick checks. Answers sit tucked under each question.
The annual property tax is $3,600 and the annual insurance premium is $1,200, with no mortgage insurance. What is the monthly escrow payment?
$400.00 a month. Tax is 3600 / 12 = $300.00 and insurance is 1200 / 12 = $100.00, so the escrow payment is $400.00 and the annual total is $4,800.00.
With principal and interest of $1,100 a month on top of that escrow, what is the total monthly payment?
$1,500.00. Principal and interest of $1,100.00 plus escrow of $400.00 gives a total monthly payment of $1,500.00.
Why can a servicer not collect more than a twelfth of the yearly bills each month?
Federal mortgage servicing rules cap the monthly escrow collection at one twelfth of the annual escrow payments the servicer reasonably expects to make in the coming year, so the escrow share is a twelfth of the annual tax and insurance bills.
Questions
What is an escrow account?
An account your mortgage servicer uses to pay property taxes, insurance premiums and similar charges on your behalf. You fund it with part of your monthly payment, and the servicer pays the bills when they come due.
Is escrow an extra fee on my mortgage?
No. It is money you would have to pay anyway for tax and insurance, spread across the year so you are not hit with one large bill.
Can my escrow payment change?
Yes. Taxes and insurance are reassessed, and the servicer runs an annual analysis that resets the monthly amount. A surplus is refunded and a shortage is usually billed over a year.
What is the one twelfth rule?
For most mortgages with an escrow account, the servicer may require no more than one twelfth of the annual escrow payments it reasonably expects to make in the coming year. It is the cap on the monthly escrow collection.
Do I need escrow at all?
Many lenders require it, and in some states it is required by law. If your loan has no escrow account, you pay the tax and insurance bills yourself and should budget for them separately.
Does this calculator include homeowners association dues?
No. Association dues are usually a separate escrowed item on some loans, so add them to the escrow figure if your statement does.
Sources
- Consumer Financial Protection Bureau: what is an escrow or impound account
- Consumer Financial Protection Bureau: limits on the monthly escrow charge
- 12 CFR Part 1024 Subpart B, mortgage settlement and escrow accounts