How Much Escrow Cushion Is Allowed Under RESPA?

Under RESPA, the escrow cushion allowed on a federally related mortgage is capped at two months of escrow payments, which equals one-sixth of your estimated annual escrow disbursements. That figure is a ceiling. Your servicer can require less, your loan documents can require less, and some states require less, but no servicer can require more, whatever your closing paperwork appears to say.¹

Where the Two-Month Cap Comes From

The cap sits in 12 U.S.C. § 2609, the escrow provision of the Real Estate Settlement Procedures Act. It prohibits a lender from requiring you to keep a reserve balance greater than one-sixth of the estimated total annual escrow charges.¹ One-sixth of a year is two months, so the two ways of stating the rule describe the same number.

The Consumer Financial Protection Bureau enforces the cap through Regulation X at 12 C.F.R. § 1024.17, which spells out how servicers must run their escrow math and what they can hold in reserve. Nothing in that regulation requires any cushion at all. Two months is simply the highest number your servicer is permitted to reach for. If your mortgage note specifies a smaller reserve, the servicer follows the note. If your state law sets a tighter cap, the servicer follows the state.²

How the Cushion Is Calculated

Regulation X requires the “aggregate analysis” method, and understanding it lets you audit your own statement. The servicer projects every escrowed disbursement for the coming year (property taxes, homeowners insurance, and any other escrowed charges) and maps each one to the month it comes due. It assumes you contribute one-twelfth of the annual total each month and works out a running balance. Then it identifies the lowest projected month and adjusts the starting balance so that low point hits exactly zero. On top of those adjusted balances, it adds the permissible cushion of up to two months of payments, or a lower figure if state law or your loan documents demand one.²

You can check the cushion figure directly. Add your annual tax and insurance bills, divide by six, and compare that number to the cushion your servicer is holding. If your combined annual escrow disbursements come to $7,200, the maximum cushion is $1,200, which is two monthly deposits of $600. Anything above that is out of bounds under federal law.

The Cushion at Closing

The same cap governs what your servicer collects into escrow at settlement. The initial deposit can cover two things: a prorated amount for taxes and insurance that will fall due between closing and your first full mortgage payment, and the one-sixth cushion computed the same way it would be for an ongoing account.¹ Extra months collected “just in case” are not permitted. If the numbers on your settlement statement look inflated, ask for the initial escrow account statement; the servicer must deliver it at settlement or within 45 calendar days.³

What Happens When the Account Holds Too Much

The cap is enforced through the annual escrow analysis and the surplus rules that follow it. When the analysis shows a balance above the allowable cushion, the servicer has to act.

If the surplus is $50 or more, the servicer must refund the full overage to you within 30 days of completing the analysis, as a check or electronic transfer. It cannot hold the money and promise to credit it later.²

If the surplus is under $50, the servicer can choose to refund it or credit it toward next year’s escrow payments.² The annual statement must show how a small surplus is being handled. Most servicers credit rather than refund, so the line item is easy to miss if you are not looking.

When State Law Sets a Lower Cap

RESPA is a federal ceiling, not the last word on your account. Several states cap the cushion below two months, and a few prohibit any cushion. Where state law is stricter, the servicer must follow the state. Regulation X is explicit that the more borrower-favorable limit controls.²

About a dozen states also require servicers to pay interest on money held in escrow. As of late 2025, that group includes New York, California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Oregon, Rhode Island, Utah, Vermont, and Wisconsin.⁴ Rates vary. Some states tie the payment to a market index such as the one-year Treasury yield; others set a fixed minimum. If you live in one of these states, your annual escrow statement should show accrued interest, and its absence is worth a question to the servicer.

One change to watch. In December 2025, the Office of the Comptroller of the Currency proposed a determination that federal law preempts these state interest-on-escrow requirements for national banks.⁴ If the determination becomes final, borrowers whose loans are serviced by national banks could lose the right to escrow interest even in states that currently require it. National bank names typically include “N.A.” or “National Association.”

If You Think Your Cushion Is Too High

Regulation X gives you a formal way to challenge the account. Send a written request to the address your servicer has designated for correspondence, which is often different from the payment address. The servicer must acknowledge within five business days and provide a substantive response within 30 business days, with a possible 15-business-day extension for complex issues if it notifies you.⁵

Before escalating, the most effective single step is asking for a new escrow analysis. The servicer cannot refuse, and if fresh numbers show an overage above the allowable cushion, the surplus refund rules take over automatically.

If the servicer will not respond, responds inadequately, or refuses to correct an overcharge, you can file a complaint with the CFPB.⁶ RESPA also gives you a private right of action. A servicer that shows a pattern of noncompliance can be liable for your actual damages plus up to $2,000 in additional damages per borrower, along with attorney’s fees. In a class action, the additional-damages cap is the lesser of $1,000,000 or one percent of the servicer’s net worth.⁷

1
Office of the Law Revision Counsel. 12 USC 2609 – Limitation on Requirement of Advance Deposits in Escrow Accounts
2
Consumer Financial Protection Bureau. 12 CFR 1024.17 Escrow Accounts
3
eCFR. 12 CFR 1024.17 – Escrow Accounts
4
Federal Register. Preemption Determination – State Interest-on-Escrow Laws
5
Consumer Financial Protection Bureau. 12 CFR 1024.36 Requests for Information
6
Consumer Financial Protection Bureau. Submit a Complaint
7
Office of the Law Revision Counsel. 12 USC 2605 – Servicing of Mortgage Loans and Administration of Escrow Accounts