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Escrow calculator and formula

By Jude Wallis

A mortgage escrow deposit is annual property tax plus annual homeowners insurance, divided by twelve. $6,000 of tax and $1,800 of insurance is $7,800 a year, or $650 a month.

Base monthly escrow deposit

$650.00

$7,800.00 a year of tax and insurance, before a shortage or cushion.

Annual tax
$6,000.00
Annual insurance
$1,800.00
Monthly deposit
$650.00
$

Projected property tax the impound will pay this cycle.

$

Projected premium the impound will pay this cycle.

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On this page

Next on Buying a home

Adjustable-rate mortgage

The formula

E=T+H12E = \dfrac{T + H}{12}

TT is projected annual property tax. HH is projected annual homeowners insurance. EE is the base monthly impound deposit before a shortage or cushion.

Two annual bills, one monthly deposit

The identity adds the two impound bills, then spreads them across twelve statements. On $6,000 of tax and $1,800 of insurance the year is $7,800 and one twelfth is $650.

How a mortgage escrow works is the explainer. This page is the working split. How PITI works is the full housing payment that contains this deposit.

A thinner pair of bills

Cut tax to $3,600 and insurance to $1,200. The year is $4,800 and the base deposit is $400 a month. The loan's principal and interest line did not move. Only the impound numerator moved.

Principal still lives on the loan account. An escrow deposit does not reduce the balance.

Not a closing escrow, and not a cushion

The word escrow also names the agent who holds purchase funds at closing. This page is the ongoing impound after closing. A permitted cushion can sit on top of EE. A shortage can change the next collection. Neither is inside the division until you add it.

How mortgages work is the loan around the impound.

What this page is not doing

It does not run an annual analysis, pick a cushion, or pay a tax authority. Treat the output as (T+H)/12(T+H)/12 from the two bills you typed. This is educational material, not financial advice.

Worked examples

\$6,000 tax and \$1,800 insurance

Projected annual property tax is $6,000 and projected annual homeowners insurance is $1,800. What annual amount and base monthly deposit does escrow require?

  1. Add the annual bills: 6000+1800=78006000 + 1800 = 7800, so $7,800.
  2. Spread $7,800 over 12 months: 7800/12=6507800 / 12 = 650.
  3. The base monthly escrow deposit is $650.

Annual escrow need is $7,800, made from $6,000 of tax and $1,800 of insurance. The base monthly deposit is $650.

\$3,600 tax and \$1,200 insurance

Projected annual property tax is $3,600 and projected annual homeowners insurance is $1,200. What are the annual and monthly escrow amounts?

  1. Add the annual bills: 3600+1200=48003600 + 1200 = 4800, so $4,800.
  2. Divide by 12: 4800/12=4004800 / 12 = 400.
  3. The base monthly escrow deposit is $400.

Annual escrow need is $4,800, made from $3,600 of tax and $1,200 of insurance. The base monthly deposit is $400.

Treating the impound as extra principal

The deposit sits in a custodial account for later bills. It does not retire loan principal. Mixing it into the amortising payment overstates how fast the balance falls.

Common questions

Is this the closing escrow?

No. This page is the monthly impound for tax and insurance after closing.

Does a shortage change the formula?

A shortage can change the next collection. The base identity remains annual bills divided by twelve.

Is the output financial advice?

No. Educational material. It shows the split from the two bills you typed.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.