What is an escrow shortage or surplus on my annual mortgage statement?

Each year your lender runs an escrow analysis comparing what it collected against what it actually paid for your taxes and insurance. A shortage means bills rose more than expected and your account came up short; the lender spreads the deficit over the next 12 payments and often raises your monthly amount to rebuild the cushion. A surplus means it over-collected, and if the excess is more than $50 the lender must refund it, usually by check, under federal RESPA rules. You can send a lump sum to cover a shortage and keep your monthly payment lower going forward. Read the statement carefully so you understand which part of the change is a one-time catch-up versus an ongoing increase.