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Understanding Your Escrow Account

An escrow account may be set up by your lender to collect and hold funds to pay certain property-related expenses. These expenses often include property taxes, homeowners insurance, flood insurance and mortgage insurance. An escrow account is a convenient way to have Navy Federal Credit Union manage the payment of your tax and insurance bills for you.1

Video Transcript for Understanding Your Escrow Account

- Hello, I'm Natalie Johnson with Navy Federal, and I'm here to talk about your escrow account. 




Understanding Your Escrow Account. Escrow is an account that we set up on your behalf to set aside funds to pay certain expenses, such as property taxes and insurance. And it's a great way to manage your budget by helping you plan for them. You don't have to worry about saving up money for these large payments or about keeping track of multiple payment due dates. We handle that for you. 


Let's go over what's included in your mortgage payment. First, there's principal and interest. This is the amount you pay toward your mortgage. Next is the amount you pay toward property taxes. And last is insurance. This could include your homeowner's insurance, flood insurance, or even private mortgage insurance if you have it. 


When you take out your mortgage with us, we set up an escrow account for you. Every month, we collect 1/12 of your annual property taxes and insurance costs. For example, if your annual insurance premium is $900, we would collect $75 from you each month. And if your annual property taxes were $1,200, we would collect $100 every month. These figures are just examples. Your actual costs will be based on the value of your property. 


We set this money aside in your escrow account, then make these payments on your behalf when they're due. We also require an extra cushion that's equal to one to two months escrow payments. It covers unanticipated costs, such as tax or insurance increases. 


Every year, we'll perform an escrow analysis to make sure the account is adequately funded. We'll send you an escrow analysis statement that outlines any changes, such as an increase or decrease in your taxes and insurance costs. Navy Federal doesn't control your insurance or tax costs, but we do make sure the correct amount is being set aside each month. 


Why Your Escrow Payment Could Increase. The most common reason your escrow payment may increase is that your taxes or insurance have gone up. We'll use the cushion in your escrow account to help cover the increase. That means your cushion may have a shortage. And if so, you'll need to replenish it. We'll spread out the shortage equally over 12 months and add that amount to your monthly mortgage payment. Or, if the shortage is less than one month's escrow payment, you can pay for it in one lump sum. 


Keep in mind that, even if you pay a lump sum, your monthly escrow payment will likely increase to cover the higher costs of your taxes and insurance. So you'll also need to contribute more each month to your escrow account to cover the increase. 


Here's an example where we're using sample figures only. Say your annual insurance premium was originally $900 a year, but it goes up $100. So now it's $1,000. Originally, we were collecting 1/12 of $900 from you each month, or $75. But now we'll need to set aside $83. The difference between $83 and $75 is $8. So we'll add an extra $8 to your mortgage payment each month. Your costs may vary, and we're rounding figures to the nearest dollar just to make it easier. 


Sometimes your taxes or insurance costs go down and your escrow payment could decrease. Maybe you changed insurance providers and they're offering you a better price. If your taxes or insurance costs go down, that could result in a surplus of funds in your escrow account. Depending on the amount of the surplus, these extra funds may be refunded to you. We'll automatically deposit any refund into the Navy Federal account we have on file for you if you've authorized us to do so. If not or if we don't have your account info on file, we'll mail you a check. And if your refund is less than $50, we'll apply it as a credit toward your escrow payment. 


I hope this information has been helpful. If you have more questions about escrow or how it's gone up or down, our escrow analysis guide will help you understand your annual escrow analysis statement. We also have more information on our homeowner resources page at And we're always available by phone at 1-888-842-6328. 


Navy Federal Credit union serves Army, Marine Corps, Navy, Air Force, Coast Guard, Space Force, veterans, and their families. Our members are the mission. 1-888-842-6328. Navy Federal Credit union is an equal housing lender federally insured by NCUA. Copyright 2021 Navy Federal NFCU 9947, 3-21. All rights reserved. 

How It Works

Your monthly mortgage payment may include an amount to be paid into your escrow account for payment of your property taxes and insurance.

Calculating Escrow Payments

  • To set up your escrow account, we'll divide your projected annual tax and insurance bills by 12 and add the resulting amount to your monthly mortgage payment.
  • Each month, we’ll deposit the escrow portion of your mortgage payment into the escrow account to pay your insurance premiums and taxes when they’re due.
  • We also require a cushion of 1-2 months’ escrow payments to cover unanticipated costs, such as tax or insurance increases. This cushion is also known as the allowable low balance in your escrow account.

What to Expect

The amount you pay into your escrow account is calculated at closing and then reviewed annually. These payments can increase or decrease as your taxes or insurance premiums change. As your lender, Navy Federal doesn’t control these costs.

Escrow Analysis

Every year, we conduct an escrow analysis to make sure your escrow balance is adequately funded to cover costs for taxes and insurance for the upcoming year. The analysis includes a projection of the anticipated monthly escrow balance based on payments to be received from you as part of your monthly mortgage payment and payments to be made from your account for taxes and insurance for the 12 months included in your escrow analysis year:

  • If the projected low balance is below the required escrow cushion amount (also known as the allowable low balance), it results in a shortage that will be spread equally over 12 months and is added to your monthly mortgage payment. Alternatively, you may have the option to pay the escrow shortage in one lump sum. If the shortage is paid in one lump sum, your monthly payment will be reduced by the amount pertaining to the shortage payment only. Your base escrow payment will stay the same.
  • If the projection shows a surplus of funds in your escrow account, the surplus may be refunded to you.
  • Regardless of whether there’s a shortage or surplus, if there’s been an increase in your taxes or insurance, your escrow payment may still increase as your base escrow payment is always calculated as 1/12 of your projected annual taxes and insurance premiums.
  • Once your analysis is completed, we’ll send you a summary outlining any changes (called an escrow analysis statement) before the changes to your monthly payment amount take effect.
  • The timing of your analysis depends on the state in which your property is located. Download the schedule for more information.


Still have questions about escrow?

Read answers to frequently asked questions here or contact us with your question today.

Escrow information is available on your monthly mortgage statements. Every year, you’ll receive an escrow analysis statement with a complete breakdown. Additionally, you can view escrow information within HomeSquad by following the instructions below:

  1. Sign in to online banking
  2. Click on your mortgage account number to launch HomeSquad
  3. Navigate to the My Loan dashboard
  4. View the Taxes & Insurance tile

It depends on certain factors. For example, your tax office may charge additional fees outside of your regular tax bill. These fees would need to be paid through your escrow account. If you’re tax exempt, please forward us an exemption approval letter and the updated tax amount using either of the methods below.

  • Mail to Navy Federal Credit Union, P.O. Box 3304, Merrifield, VA 22119
  • Sign in to your Navy Federal account and send us an eMessage

Escrow balance refers to the amount of funds available in your escrow account for the payment of escrow items such as property taxes and insurance. If you have an escrow account connected to your mortgage loan, your monthly mortgage payment will typically include 3 components. One part of your mortgage payment goes toward reducing the principal amount of the loan, one part of the payment goes toward interest and the other portion is applied to fund your escrow account. The balance in your escrow account is  used to pay upcoming expenses like real estate taxes and homeowners insurance. 

Since your escrow account is established by the terms of your loan documents specifically for the payment of taxes, insurance, and certain fees related to your property, you can't access the balance of your escrow account.  

Typically, homeowners pay these bills directly because these charges aren't included in your escrow payment. Supplemental bills often result from tax reassessments, especially for new construction properties. If you’d like to pay your supplemental tax bill from your escrow account, send us a request along with the bill as soon as possible, and we can make this payment on your behalf. Requests may be submitted using either of the methods below. Please note that if a supplemental bill is paid through the escrow account, it’s likely that the escrow portion of your monthly payment will increase.

  • Mail to Navy Federal Credit Union, P.O. Box 3304, Merrifield, VA 22119
  • Sign in to your Navy Federal account and send us an eMessage

You may be eligible to pay your taxes and insurance independently; however, if flood insurance is required on your home, it must be paid through an escrow account. To cancel your escrow account, submit a request for an escrow waiver. Some criteria we consider for escrow waivers are:

  • Loan-to-value ratio (LTV): Your LTV ratio must be lower than 80%.
  • Loan type: VA and FHA loans generally require escrow.
  • Occupancy: The property must be your primary residence.
  • Age of your loan: Your loan must be older than 6 months.
  • Escrow balance: Your escrow account balance must be positive.

To request an escrow waiver, please use either of the methods below:

  • Mail us your request at: Navy Federal Credit Union, P.O. Box 3304, Merrifield, VA 22119
  • Sign in to your Navy Federal account and send us an eMessage

You may change insurance providers at any time. Please notify us and send us a copy of the declarations page from your new policy so we can update our records and issue payment. The documents may be submitted using any of the methods below. As soon as your new policy is issued, please also contact your previous insurance provider to cancel the old policy. Depending on when your previous policy was paid, there may be a refund issued to you. Typically, refunds should be deposited back into your escrow account to avoid an escrow shortage.


Depending on your new insurance premium amount, your mortgage escrow payments could increase or decrease. If you change insurance companies, you may wish to request an escrow analysis after the new premium has been paid and any refunds have been deposited back into escrow from the previous policy. This will allow us to adjust your monthly payments according to the new insurance amount.

Usually, your insurance provider will send us your annual renewal information. If not, we’ll send you a letter asking for your insurance declaration page. If we don’t receive a record of your insurance renewal, we’ll purchase insurance for the property through your escrow account. This is called Lender Placed Insurance, and coverage may be limited and more expensive than a policy you can buy yourself.

If your home is in a mandatory flood zone, you must have flood insurance. Even if your property wasn't in a flood zone originally, it may be designated as in a flood zone by the Federal Emergency Management Agency (FEMA) at any time. Alternatively, your property may be removed from a flood zone. We’ll notify you if either of these changes happen. Please note that obtaining flood insurance coverage is highly recommended, even if your property isn't located in a mandatory flood zone. According to FEMA, over 20% of flood claims are filed on properties that weren't located in mandatory flood zones.

For some loans, mortgage insurance cannot be removed unless you refinance or pay off the loan. In other cases, mortgage insurance can be canceled when the loan-to-value (LTV) ratio reaches a certain percentage. To find out if mortgage insurance can be removed from your loan, please contact us using one of the methods below.

  • Mail to Navy Federal Credit Union, P.O. Box 3304, Merrifield, VA 22119
  • Sign in to your Navy Federal account and send us an eMessage
  • Call us at 1-888-842-6328



This information is intended to provide general information and should not be considered tax advice. Please consult a tax professional for more information.