Understanding Mortgage Escrow Adjustments: Aggregate Adjustment Explained

The aggregate adjustment usually reduces the initial mortgage escrow amount.

The aggregate adjustment affects the amount of funds that are held in a mortgage borrower's escrow account at closing. This amount appears on Line 1007 of a HUD-1 standard real estate settlement statement. It is typically a credit, or negative amount, offsetting the individual amounts that are shown for escrows for taxes, insurance and other payments on Lines 1001 through 1006 of the HUD-1. Escrows usually apply to both taxes and insurance; there is unlikely to be an aggregate adjustment if only taxes are escrowed.

Step 1

Make rows on a spreadsheet for each of the first 12 months, starting with the month the first payment is due.

Step 2

In a separate column, list all payment amounts that will be paid out of the escrow account in the months they are due.

Step 3

Divide the total amount of payments from Step 2 by 12.

Step 4

Enter the figure from Step 3 in another column for each month as the tentative amount that will be paid into escrow monthly.

Step 5

Calculate the initial balance for each month. The initial balance is the initial balance from the preceding month (zero for the first month) plus the escrow deposit minus the month's payments.

Step 6

Find the amount of additional funds that would be needed to bring the lowest initial balance up to zero.

Step 7

Determine the "cushion," or lowest positive balance, that the lender requires for the account. Under federal rules, this cannot be more than one sixth of the total payments in Step 2, except that mortgage insurance paid monthly cannot be included in the total payments for this purpose.

Step 8

Compute the initial escrow payment under aggregate adjustment rules by adding together the amounts from Steps 6 and 7.

Step 9

Subtract the amount from Step 8 from the sum of the escrow amounts using single-item accounting on Lines 1001 through 1006 of the HUD-1.

Step 10

Enter the amount from Step 9 as a credit, or negative amount, on Line 1007, Aggregate Adjustment. However, if the calculation from Step 9 results in a negative number or zero, enter zero on Line 1007.

Warning

You are not allowed to round dollar amounts.

If there is no aggregate escrow adjustment, make sure you put zero on Line 1007, since you are required by law to disclose the aggregate escrow adjustment.

The Federal Reserve Bank of Philadelphia reports that over-reliance on automated systems often causes errors in escrow calculations.