How Escrow Accounts Work

If you don’t want to find yourself short of funds when it comes time to make rather large, annual payments associated with your mortgage -- like property taxes and insurance -- you can set up an escrow account and combine those bills with your monthly mortgage payment.

Curious about how escrow works? Here are some answers to your questions:

1. What is escrow and what can typically be paid through escrow?

Escrow funds are typically collected to pay real estate taxes, homeowners insurance, and monthly PMI (private mortgage insurance) premiums, if applicable. Escrow can also be for other mortgage-related fees such as homeowners’ association fees or any other required insurance policies, such as flood insurance.

2. How does escrow work?

Based on the information provided from your insurance company, taxing authority, and any other third party to which we are paying escrow funds, as well as looking at what you paid the prior year, we estimate the amount we need to collect. The total amount is then divided over 12 months and added to your monthly mortgage payment.

3. What is an escrow analysis?

Banks will conduct an escrow analysis every year. A lender will review your account to make sure the funds set aside for escrow will cover your projected disbursements for the year. If any of the amounts have changed from the prior year, your escrow payment will be recalculated. We will also ensure that any minimum balances on your escrow account are met. When the analysis is run, you will receive a statement in the mail. If any of your disbursements decrease at any time throughout the year and you want us to recalculate your escrow payments, please contact us.

4. Why is my escrow amount changing?

If, for example, your taxes or insurance premiums increase or decrease, this change will be reflected in the amount due for your escrow. Any changes will be outlined in your annual escrow analysis.

5. What happens if I have a shortage in my escrow account?

There may be a shortage in your escrow account if your taxes, insurance or any other projected amounts were higher than expected. If you experience a shortage, you may either pay it in full, or divide your shortage over 12 months and add it to your monthly mortgage payment. If the shortage is not paid in full, it will be automatically divided.

6. What happens if I have an overage in my escrow account?

If you experience an overage in your account of $50 or greater, we are required by law to send you a refund check. For an overage that is less than $50, we will apply that amount to your escrow balance, thus reducing the next 12 monthly escrow payments.

7. Why does my escrow account have a minimum required balance?

Requirements for a minimum balance are regulated by federal or state law. A minimum balance is equal to the lowest balance you are projected to owe for the next 12-month period, plus two months of escrow payments. By having the two-month cushion in your account, this allows your account to be able to absorb small, unexpected increases that would ordinarily overdraw your escrow account.

8. What criteria make escrowing mandatory?

Escrow is mandatory for loans that have a loan-to-value (LTV) greater than 80 percent. LTV is calculated by taking the loan balance and dividing by the lesser of the purchase price or appraised value. (The appraised value is used if the loan is a refinance.)

9. Where can I find more information about my escrow account?

We’re here to help! To speak to a mortgage representative at INB, please contact our loan department at 217-747-8633 or email

Reminder: do not send personal account information via email. If you choose this method of contact, please include a phone number and the best time we can reach you.