For many homeowners, the stability of a fixed-rate mortgage brings peace of mind, with the expectation of consistent monthly payments. However, even with a fixed interest rate, some homeowners might be surprised to find their monthly mortgage payment has increased in 2025. If you’ve experienced this, you’re likely wondering what happened. The answer often lies in the intricacies of your escrow account. 

This guide will break down the concept of escrow shortages, explain why they matter for homeowners in 2025, particularly in Denver, and provide actionable steps to manage them.

What Exactly is an Escrow Account? 

An escrow account is a separate account managed by your mortgage lender to cover property-related expenses like taxes and homeowners insurance. Each month, a portion of your mortgage payment is deposited into this account. When these bills come due, your lender uses the escrow funds to pay them on your behalf.

This system helps you avoid large, lump-sum payments by spreading the costs evenly throughout the year, making budgeting more manageable and ensuring timely payments to avoid penalties or lapses in coverage.

Is Your Escrow Account Running Low in 2025?

Even if you pay your mortgage on time, rising property taxes or homeowners insurance premiums can cause your escrow account to fall short. When this happens, your lender will adjust your monthly payment to cover the difference over the next year. This annual review, known as an escrow analysis, checks the previous year’s payments and estimates the upcoming costs.

Key points: 

• An escrow shortage means there isn’t enough money in your escrow account for your upcoming tax and insurance bills.
  • Your lender adjusts your mortgage payment to make up for the shortage over the following 12 months.
  • The shortage is usually due to increases in property taxes or insurance premiums, not because you missed payments.

The Key Culprits Behind Escrow Shortages in 2025

When your escrow account falls short, the extra amount needed to cover your property taxes and homeowners insurance ends up raising your monthly mortgage payment. Here’s what to know about why escrow shortages happen, especially in Denver:

• Rising Property Taxes

  
  • Local governments reassess your home’s value and adjust tax rates based on budget needs.
  • If your home’s assessed value increases (even with protections like the “Save Our Homes” cap, which limits the annual rise to the lesser of 3% or the increase in the Consumer Price Index), your tax bill will likely increase.
  • Although there’s talk of proposals and even rebates from the governor, these changes are not in effect for 2025.
  • Millage rates are set by your local county and city, and those can fluctuate, resulting in higher taxes.

   

• Escalating Homeowners Insurance Premiums

  
  • Denver’s challenging insurance market means premiums are expected to rise—reports point to an average increase of about 9% in 2025.
  • Factors like increased hurricane risks, higher costs for building materials and labor, and overall market instability contribute to these hikes.
  • While some companies, such as Citizens Property Insurance, have announced rate reductions for select policyholders, overall premiums remain high in a “hard” market.

   

• Initial Escrow Estimates vs. Actual Costs

  
  • When you first get your mortgage, your lender makes an educated guess on the escrow amount based on current tax and insurance costs.
  • If these costs go up after you close on your home—particularly in newly built homes—the initial estimate may fall short, resulting in an escrow shortage.

   

“Even with the cap from Save Our Homes, local factors and rising costs can still push your escrow account into a shortage. It’s all part of the real cost of homeownership.”

How an Escrow Shortage Affects Your Monthly Mortgage Payment in 2025

In 2025, if your escrow account falls short, your lender typically gives you two choices:

• Lump Sum Payment: Pay the entire shortage at once.
• Monthly Adjustment: Spread the shortage over the next 12 months—for example, a $600 shortage might add about $50 to your monthly payment.

Keep in mind that even if you cover the shortage with a lump sum, your monthly payments could still rise if property taxes or insurance premiums go up. Reviewing your annual escrow analysis statement is key to understanding these changes. If you need help deciphering your statement or planning your next steps, Mortgage Maestro is here to guide you every step of the way.

What Denver Homeowners Can Expect in 2025

To give you a clearer picture of what’s happening in 2025, homeowners across the United States might see property tax increases in the range of 5-6% in many areas.1 Homeowners insurance premiums in Colorado are projected to increase by 11% in 2025, with the average annual premium reaching $6,630.74.

Remember, these are just averages. The actual increase you see will depend on your specific location within Denver, the value of your home, and your insurance provider.

Practical Steps to Manage Escrow Shortages

When you get your annual escrow analysis statement, don’t just set it aside. Instead, follow these steps to keep on top of your escrow account—and your mortgage payment:

Review Your Statement Thoroughly:

• Check the projected amounts for property taxes and homeowners insurance for the upcoming year.
• Look at last year’s payouts and compare them with what your lender expects to pay this year.
• Note any reported shortage or surplus and how it will affect your monthly payment.

Budget a Little Extra:

• Property taxes and insurance costs in Denver can be unpredictable. Try setting aside an extra $25–$50 per month to cushion against any shortfalls.
• Consider opening a separate savings account dedicated solely to these potential increases. This small habit can help prevent the stress of a big, unexpected bill.

Ask Questions:

• If anything on your statement isn’t clear, contact your mortgage lender for an explanation.
• Ask about the specific reasons for the shortage—is it due to a property tax increase, or have your insurance premiums gone up?
• Discuss whether the shortage will be added to your monthly payments or if you have the option to pay it off in a lump sum.

Stay Informed:

• Regularly check local Denver news and your county government’s website for updates on property tax rates and insurance changes.
• Useful resources include the Colorado Department of Revenue (colorado.gov/revenue) and the Colorado Division of Insurance (doi.colorado.gov).
• Bookmark these sites and consider setting up alerts for related news.

At Mortgage Maestro, if you need guidance reviewing your statement or advice on budgeting for future increases, our team is ready to assist.

Further Reading and Final Thoughts

For a deeper dive into escrow accounts and their role in your mortgage, check out Mortgage Maestro’s guide, “What is Escrow Shortage in Mortgage?” It lays a great foundation that this refreshed guide has built on with the latest insights for 2025.

Escrow shortages are a normal part of homeownership—even if they can be a bit frustrating. With rising property taxes and higher insurance costs, it’s more important than ever to review your annual escrow analysis closely, budget for any potential increases, and talk with your lender about your options. 

Remember, your monthly mortgage payment covers more than just your loan; it includes vital expenses that protect your home. Stay informed, plan ahead, and you’ll be well-prepared to handle any adjustments that come your way.

Have questions about your escrow balance? Book a call with the Mortgage Maestro team today and get clarity fast.