Last verified April 2026
§ 1024.17Escrow Analysis Explained: How Lenders Calculate Your Monthly Escrow Payment (RESPA Reg X)
Every year your servicer runs an escrow analysis: they project 12 months of tax and insurance disbursements, verify the account will stay within the allowed cushion, and recalculate your monthly payment. Here is how it works, in plain language, with the actual regulation cited.
What Is an Escrow Analysis?
An escrow analysis is an annual review your mortgage servicer is required to conduct under RESPA Regulation X (12 CFR § 1024.17). The servicer projects the next 12 months of disbursements from your account, compares the projected balance at each point in time against the allowed cushion floor, and calculates the monthly escrow payment that will keep the account properly funded.
The analysis must be done at least once every 12 months. Per § 1024.17(i), the servicer must deliver the analysis statement within 30 days of the computation year end. The statement shows your starting balance, every disbursement made, any surplus or shortage, and the new monthly payment.
The escrow analysis determines three things: (1) whether your account has a surplus or shortage from the past year, (2) what your monthly payment should be for the next 12 months, and (3) whether the cushion is within the RESPA-permitted maximum.
The RESPA Framework: Section 1024.17
12 CFR § 1024.17(c)(1)(ii)
"A servicer may require a borrower to maintain a cushion no greater than one-sixth (1/6) of the estimated total annual disbursements from the escrow account."
Source: Electronic Code of Federal Regulations, ecfr.gov
This means the maximum cushion your lender can hold is 1/6 of what they project to pay out in a year - effectively two months of disbursements. If your annual tax is $6,000 and insurance is $1,800, total annual disbursements are $7,800, and the maximum cushion is $1,300.
Aggregate accounting (required by § 1024.17(d)) means the servicer must compute the account balance over the entire 12-month projection period as a whole, not item by item. The account must never exceed the cushion at the high point of the year, and the analysis must identify the month when the balance is at its lowest. The monthly payment is set so that the lowest projected balance equals the required cushion (not zero).
The aggregate adjustment credit is applied at loan origination when the required initial deposit, if collected in full, would cause the account to exceed the cushion limit during the projection year. The servicer reduces the initial deposit by the credit amount to stay within the RESPA limit.
Worked Example: 12-Month Projection Table
Borrower has an annual property tax of $6,000 paid in two $3,000 installments (July and December). Annual homeowners insurance of $1,800 paid in January. Total annual disbursements: $7,800. Monthly contribution: $650. Max cushion: $1,300 (1/6 of $7,800). Starting balance: $1,300 (cushion).
| Month | Deposit | Disbursement | End Balance |
|---|---|---|---|
| Starting balance (cushion) | $1,300 | ||
| Jan | +$650 | -$1,800 | $150LOW |
| Feb | +$650 | - | $800 |
| Mar | +$650 | - | $1,450 |
| Apr | +$650 | - | $2,100 |
| May | +$650 | - | $2,750 |
| Jun | +$650 | - | $3,400 |
| Jul | +$650 | -$3,000 | $1,050 |
| Aug | +$650 | - | $1,700 |
| Sep | +$650 | - | $2,350 |
| Oct | +$650 | - | $3,000 |
| Nov | +$650 | - | $3,650 |
| Dec | +$650 | -$3,000 | $1,300 |
Annual disbursements
$7,800
Max cushion (1/6 rule)
$1,300
Low-point balance (Dec)
$150
Equals cushion - account properly funded
In this example, the December low-point balance equals exactly the required cushion ($1,300). The servicer has calibrated the monthly deposit correctly. If taxes or insurance increase next year, the low-point will fall below the cushion and a shortage will result.
Surplus Refund Rules Under RESPA
Under 12 CFR § 1024.17(f)(2)(i), if your escrow account balance at the end of the computation year exceeds the cushion by more than $50, your servicer must refund the excess to you within 30 days of the annual analysis. This is not discretionary - it is a federal requirement.
If the surplus is $50 or less, your servicer may either refund it or apply it as a credit to your next monthly escrow payment. In practice, many servicers refund small amounts anyway for customer satisfaction.
If your servicer misses the 30-day refund deadline, you can file a written complaint. Under RESPA's error resolution provisions (§ 1024.35), the servicer must acknowledge within 5 business days and respond within 30 business days. Persistent violations can be reported to the CFPB.
Common RESPA Escrow Violations
Over-cushioning
Maintaining balances above the 1/6 maximum. The Federal Reserve identified this as one of the most common RESPA violations in servicer compliance examinations (Consumer Compliance Outlook, 2023). Servicers that systematically over-collect earn float on your money in excess of what the law allows.
Late surplus refunds
Failing to issue the refund within 30 days of the annual analysis. This is particularly common when servicers are processing high volumes of analyses and fall behind. If you received a surplus on your statement but no refund, contact your servicer in writing.
Improper single-item accounting
Using item-by-item accounting instead of aggregate accounting as required by § 1024.17(d). Single-item accounting results in higher required balances because each line item (tax, insurance) must maintain its own cushion separately rather than the account as a whole.
Missing or late annual statements
Failing to deliver the annual escrow analysis statement within 30 days of the computation year end. This prevents homeowners from knowing whether their payment will change and why.
Frequently Asked Questions
What is the RESPA 1/6 cushion rule?
What is aggregate accounting in escrow?
What is an aggregate adjustment credit?
When does my servicer have to send the annual escrow statement?
What happens if my surplus is less than $50?
What are common RESPA escrow violations?
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