Enter the current escrow balance and the total obligations into the calculator to determine the escrow refund.
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Escrow Refund Formula
The following equation is used to calculate the Escrow Refund.
ER = EB - PO
- Where ER is the escrow refund ($)
- EB is the escrow balance ($)
- PO is the total obligations ($)
To calculate the escrow refund, subtract your total obligations from your escrow balance.
What is an Escrow Refund?
Definition:
An escrow refund is the surplus amount in an escrow account that exceeds the required funds needed to pay for items such as property taxes, homeowners insurance, and other relevant fees. Any remaining funds, once all obligations are covered, can be returned to the account holder.
How to Calculate Escrow Refund?
Example Problem:
The following example outlines the steps and information needed to calculate the Escrow Refund.
First, determine the current escrow balance. In this example, the escrow balance is $2,000.
Next, determine the total obligations. In this case, those obligations, which include an upcoming property tax payment and an insurance premium, total $1,400.
Finally, calculate the escrow refund using the formula above:
ER = EB - PO
ER = $2,000 - $1,400
ER = $600
FAQ
Can I use the escrow refund for any purpose?
Once the funds are refunded, they generally become yours to use at your discretion. However, your mortgage lender may have specific guidelines regarding the handling of excess escrow funds. It’s recommended to check with your lender before using the refund.
What happens if my escrow obligations increase unexpectedly?
If your taxes, insurance premiums, or other covered expenses increase after you’ve already received a refund, you could face a shortage in your escrow account. This might mean you need to contribute additional funds to cover the shortfall, so it’s wise to keep track of changing costs.
Is it necessary to maintain a minimum balance in the escrow account?
Many lenders do require a cushion or minimum balance in the escrow account to cover any unforeseen increases in payments. The exact amount varies, so consult your mortgage documentation for precise requirements.