Escrow Monthly Reserve
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The escrow reserve is a fund your lender collects, typically as part of your monthly mortgage payment, to cover upcoming property tax and homeowners insurance bills when they come due. It ensures these large, infrequent bills are paid on time without requiring a lump sum from you.

Federal rules typically allow lenders to hold a cushion of up to two months' worth of escrow payments as a buffer against tax or insurance increases and payment timing mismatches. This cushion is legal and standard, not an overcharge, though it does mean your monthly reserve amount is slightly more than a simple annual-bill-divided-by-twelve figure.

Your lender will conduct an annual escrow analysis and adjust your monthly payment going forward to cover the new, higher costs, and may require a one-time shortage payment to cover the gap that accrued before the adjustment. This is why mortgage payments with escrow can increase even when your rate and principal are fixed.

Yes — if the annual escrow analysis shows your account holds more than the legally permitted cushion, the lender is generally required to refund the excess or apply it as a credit. Shortages work the other way, requiring you to make up the difference.

It depends on your loan type and down payment — many conventional loans allow waiving escrow once you have sufficient equity (often 20%+), while FHA, VA, and low-down-payment conventional loans typically require it. Even when optional, some lenders charge a fee or rate adjustment for waiving escrow.