Understanding escrow accounts: What homeowners need to know

When you buy a home, your mortgage payment often includes more than just principal and interest. It can also include an escrow portion that covers property taxes, homeowner’s insurance, and possibly flood or wind insurance. This arrangement helps you budget for large annual expenses smoothly and ensures key bills get paid on time.

For example, missing your insurance payment could risk your coverage and your home.

Having funds set aside in escrow prevents that risk and helps you stay financially on track

1. The monthly breakdown: When you make your mortgage payment, the lender typically divides it into at least two components: 

•  Principal & interest (P&I): The core loan repayment.
•  Escrow payment: A portion that goes toward your property tax and insurance obligations.

With your escrow payment, M&T collects a portion each month and sets it aside in a dedicated escrow account. When your bills are due, M&T pays them on your behalf.

2. How the calculation happens

To determine how much to collect each month for escrow, the lender estimates your upcoming annual tax and insurance costs, then divides that by the number of payments (usually 12), and may include a cushion (reserve) to cover fluctuations.

3. Annual Escrow Analysis

Each year, M&T conducts an escrow review to compare what was collected vs. what was actually paid. If there’s a shortage (you paid less than needed), your payment may increase. If there’s a surplus, you may receive a refund or have a reduced future payment.

• Transparency: With M&T Online & Mobile Banking you can view your escrow account activity, payments made, and track the balance. 
• Educational Support: Use M&T’s Mortgage Resource Center to learn more about escrow accounts, payment changes, and how decisions affect your long-term finances.
• Integrated Services: Considering home financing or refinancing? Visit our Mortgages & Home Loans page to explore your options and see how escrow fits into your overall payment schedule.
  
• Customer Support: If you receive a notice of escrow shortage or have questions, M&T offers direct support and guidance to help you navigate the review and adjustment process.

1. Review your annual statement carefully, especially Section 3 and your projected vs. actual disbursements.
2. Plan ahead for increases – Taxes and insurance often rise year-to-year, so building a reserve (via your savings or checking) helps prepare for future payment increases.
3. Budget for escrow adjustments – Use tools like our Savings & CD Options to help build your buffer. 

An escrow account isn’t just another part of your mortgage, it’s a built-in financial tool designed to keep you on track, protect your property, and avoid surprises. With the right knowledge and support, you can turn escrow from something mysterious into a smart part of your home-ownership strategy.

Curious how an escrow change might affect your payment? Visit our Escrow FAQs page for more detail.

*M&T will only send an escrow shortage coupon if the shortage is less than one month's escrow payment. In the event the escrow shortage is more than one month's escrow payment, the analysis statement and monthly billing statement will reflect the shortage spread out over 12 months and added to your monthly mortgage payment. You may also choose to pay the shortage all at once and your payment will be adjusted.

This content is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.

Bank NMLS #381076.