Escrow Payment Calculator Formula

Understand the math behind the escrow payment calculator. Each variable explained with a worked example.

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Formulas Used

Total Monthly PITI

total_monthly_piti = monthly_pi + monthly_escrow

Monthly Escrow Collection

monthly_escrow_amount = monthly_escrow

Monthly Tax Escrow

tax_portion = monthly_tax

Monthly Insurance Escrow

insurance_portion = monthly_insurance

Annual Escrow Disbursements

annual_total = annual_escrow_total

Required Escrow Cushion

cushion_required = cushion_amount

Variables

VariableDescriptionDefault
annual_property_taxAnnual Property Tax(USD)4800
annual_insuranceAnnual Homeowner Insurance(USD)1800
annual_pmiAnnual PMI (if applicable)(USD)0
annual_hoaAnnual HOA (if escrowed)(USD)0
cushion_monthsLender Cushion (months)2
monthly_piMonthly P&I Payment(USD)2100
monthly_taxDerived value= annual_property_tax / 12calculated
monthly_insuranceDerived value= annual_insurance / 12calculated
monthly_pmi_escrowDerived value= annual_pmi / 12calculated
monthly_hoa_escrowDerived value= annual_hoa / 12calculated
monthly_escrowDerived value= monthly_tax + monthly_insurance + monthly_pmi_escrow + monthly_hoa_escrowcalculated
annual_escrow_totalDerived value= annual_property_tax + annual_insurance + annual_pmi + annual_hoacalculated
cushion_amountDerived value= monthly_escrow * cushion_monthscalculated

How It Works

How Escrow Accounts Work

Your lender collects a portion of property taxes and insurance each month and holds it in an escrow account, paying the bills when they come due.

Monthly Escrow Calculation

Monthly Escrow = (Annual Taxes + Annual Insurance + Annual PMI + Annual HOA) / 12

Escrow Cushion

Federal law (RESPA) allows lenders to maintain a cushion of up to 2 months of escrow payments to protect against increases.

PITI Explained

  • P: Principal
  • I: Interest
  • T: Taxes (escrowed)
  • I: Insurance (escrowed)

    • Your total monthly housing cost (PITI) is what lenders use to calculate your debt-to-income ratio.

    Worked Example

    Annual taxes $4,800, insurance $1,800, no PMI or HOA. P&I payment is $2,100. Lender requires 2-month cushion.

    annual_property_tax = 4800annual_insurance = 1800annual_pmi = 0annual_hoa = 0cushion_months = 2monthly_pi = 2100
    1. 01Monthly tax escrow: $4,800 / 12 = $400
    2. 02Monthly insurance escrow: $1,800 / 12 = $150
    3. 03Monthly escrow collection: $400 + $150 = $550
    4. 04Total PITI: $2,100 + $550 = $2,650
    5. 05Annual escrow disbursements: $4,800 + $1,800 = $6,600
    6. 06Required cushion: $550 x 2 = $1,100

    Ready to run the numbers?

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