What Is an Escrow Refund and When Do You Get One?

Your mortgage lender could give you money back from your escrow fund if you have more in it than you need to cover taxes and insurance.

Daria Kelly Uhlig
Daria Kelly Uhlig
  • Licensed Realtor with 10+ years in personal finance content

  • Contributor to Nasdaq and USA Today

Daria is a licensed Realtor and resort property manager specializing in personal finance, real estate, and insurance topics. In her spare time, she practices photography.

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Evelyn Pimplaskar
Evelyn PimplaskarEditor-in-Chief, Director of Content
  • 10+ years in insurance and personal finance content

  • 30+ years in media, PR, and content creation

Evelyn leads Insurify’s content team. She’s passionate about creating empowering content to help people transform their financial lives and make sound insurance-buying decisions.

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Mortgage payments are just one of several costs you incur when you buy a home, including homeowners insurance and property taxes. Your mortgage lender has a vested interest in making sure these bills get paid on time, so it collects the payments from you in advance. The lender holds the funds in an escrow account until the bills come due.

If the lender overestimates the amount it needs to pay the bills for a given year and charges you too much, you might be entitled to an escrow refund.

Quick Facts
  • Lenders must review your escrow account every 12 months and issue a refund if you have more money in the account than you need to pay taxes and insurance.

  • Lenders must send you a refund if your escrow account is over by $50 or more.

  • You might wind up with excess escrow money if your property taxes or homeowners insurance premium goes down.

What is an escrow refund?

When you close on your home, you’ll put money into an escrow account that your mortgage servicer will use to pay your home insurance and property taxes. Going forward, a portion of your mortgage payments will go to replenish the escrow account as the servicer draws on it for necessary payments.

Mortgage rules require servicers to analyze escrow accounts every 12 months.

An escrow refund is money your mortgage servicer returns to you when its annual escrow analysis shows a surplus in your account. A surplus occurs when you’ve paid more into the account than the lender needs to pay your homeowners insurance and property taxes, and to maintain a reserve.

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Common reasons for escrow refunds

Mortgage regulations require your loan servicer to perform an “escrow account analysis” every 12 months. The analysis should determine how much you need in the account to pay taxes and insurance for the next 12 months, calculate your monthly mortgage payment for the coming 12 months, and determine whether you have too much, or too little, money in the account.

You’ll receive a refund from escrow in any of the following circumstances:

  • An analysis reveals a surplus of $50 or more. When a surplus totals $50 or more, mortgage escrow refund rules state that the lender must refund it to you within 30 days after the analysis. The lender may credit smaller surpluses to the following year’s escrow payments.

  • Your homeowners insurance premium or property tax rate decreases. A decrease in the amounts due from your escrow account could lead to a surplus of $50 or more.

  • You repay your mortgage loan in full. Your relationship with your lender ends once you’ve repaid your loan in full. At that point, you’ll be responsible for submitting your own homeowners insurance and property tax payments.

  • You cash-out refinance with a different lender. A cash-out refinance pays off your existing mortgage, so it entitles you to an escrow refund. But your new lender will open an escrow account, too, so it usually makes more sense to transfer the funds into the new account.

  • You sell your home. A home sale also results in an escrow refund because you’ll pay off your mortgage with the proceeds of the sale. The lender will then refund your escrow balance.

Keep Reading: How to Get Your Mortgage Company to Release Insurance Proceeds

Keep Reading: How to Get Your Mortgage Company to Release Insurance Proceeds

How escrow accounts work

After your mortgage lender approves your loan application, it opens an escrow account where it’ll hold the funds you need to pay your insurance premium and property taxes for the coming year. The lender may also require a reserve of up to two months’ worth of escrow expenses in case the insurance or tax bill increases unexpectedly.[1]

After you close on your home, the lender will calculate the total it needs in escrow to pay bills for the coming year and then divide the amount by 12. It adds that total to your regular mortgage payment and earmarks the funds for your escrow account.

A mortgage that works this way is called a PITI loan because it includes principal, interest, taxes, and insurance.[2] One benefit of having a PITI loan is that you don’t have to worry about managing the insurance and property tax bills. The lender gets its own copies and pays them directly from the account, with no action needed on your part except to verify that the lender has paid the bills.

What is an escrow analysis?

Insurance companies raise and lower homeowners insurance premiums, and municipalities and counties change tax rates from time to time. The law requires mortgage lenders to analyze borrowers’ escrow accounts every 12 months — to ensure they’re not collecting too much or too little based on any changes going into effect for the coming year.

If an escrow analysis shows your account won’t have enough to cover upcoming bills, your mortgage servicer will notify you. You may need to make a lump-sum payment to cover the shortfall. Or your lender could spread the shortfall amount over multiple payments added to your monthly mortgage payment.

On the other hand, if the analysis shows you have a surplus, it could reduce your future payments or issue a mortgage escrow refund.

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How do you get an escrow refund?

Once your lender’s escrow analysis identifies a surplus, it has up to 30 days to issue a refund. The precise process for that varies by lender.

For example, Wells Fargo, like many banks, sends you a refund check for the overage amount. U.S. Bank, on the other hand, lets you select how you want to receive it — as an electronic deposit into a checking account or via a paper check mailed to your home.

How long does it take to get an escrow refund?

When a surplus equals $50 or more, the lender must refund the amount within 30 days. In the case of a full loan repayment, the lender should issue an escrow balance refund within 20 days.

Escrow refund FAQs

If you think you might be getting an escrow refund, here’s some additional insight on escrow accounts and what you might do with the extra money.

  • What should you do with an escrow refund check?

    The best use for your escrow refund depends on the circumstances. If you received it because you’re refinancing your mortgage with a different lender, or you’ve sold one home to purchase another, your best bet is to transfer the funds to the escrow account opened by your new lender. If, on the other hand, the refund is from an overpayment or loan payoff, consider depositing it into a savings account.

  • Should you be concerned about a large escrow overage refund check?

    Escrow refunds aren’t uncommon, so they’re usually not a cause for concern. But if you receive a substantial refund check, it may be a good idea to contact your servicer to make sure you understand what led to the refund. And you should discuss how the servicer calculated the coming year’s escrow needs to ensure they’re as accurate as possible.

  • How long does it take to get an escrow refund?

    Times may vary based on the loan servicer and other factors, but you can generally expect to get an escrow refund within 30 days of an escrow analysis — provided your excess funds are $50 or more.

  • What happens to escrow when you sell your house?

    When you sell your house, you’ll pay off your mortgage and won’t need an escrow fund for it anymore. If you have no outstanding bills to pay out of escrow and your escrow account has leftover funds, your servicer will refund the balance to you.

  • Do you have to pay taxes on an escrow refund?

    No. The money refunded to you is unused money you paid into the account. It’s not a payment from the lender.

Methodology

Insurify data scientists analyzed rates from more than 180 home insurance companies sourced directly from Insurify’s partner companies and Quadrant Information Services. Rates span all 50 states and Washington, D.C., and quote averages represent the mean price for a given coverage level and geographic area. To ensure data reliability, only insurers meeting minimum quote thresholds were included in the analysis.

Unless otherwise specified, quoted rates reflect the average cost for homeowners with no prior claims and good credit with a home construction year of 1980. The default coverage assumptions include:

Default Coverage Assumptions

  • Dwelling coverage: $300,000
  • Deductible: $1,000
  • Personal property limit: $25,000
  • Liability limit: $300,000

Additional data points beyond these default values are sourced from Insurify’s proprietary database. Rates are updated monthly.

Sources

Daria Kelly Uhlig
Daria Kelly Uhlig

Daria Uhlig is a freelance writer and editor with over a decade of experience creating personal finance content. Her work appears on USA Today, Nasdaq, MSN, Yahoo Finance, Fox Business, GOBankingRates and AOL. As a licensed Realtor and resort property manager, she specializes in real estate topics, including landlord, homeowners and renters insurance. In her spare time, Daria can be found photographing people and places on Maryland's Eastern Shore. Connect with her on LinkedIn.

Daria has been a contributor at Insurify since October 2022.

Evelyn Pimplaskar
Edited byEvelyn PimplaskarEditor-in-Chief, Director of Content
Evelyn Pimplaskar
Evelyn PimplaskarEditor-in-Chief, Director of Content
  • 10+ years in insurance and personal finance content

  • 30+ years in media, PR, and content creation

Evelyn leads Insurify’s content team. She’s passionate about creating empowering content to help people transform their financial lives and make sound insurance-buying decisions.

Featured in

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