How to Calculate Aggregate Adjustments

The aggregate adjustment is a mathematical process that lenders use to determine how much must be deposited in escrow by the borrower. In 1997, the Department of Housing and Urban Development outlined rules that prohibit lenders from collecting more than two months' cushion in escrow; however, depending on when property taxes and hazard insurance is paid, the amount that's deposited may exceed the two month cushion. To calculate the total, you'll need to know when your insurance and property tax bills are due.

Start by making the calculation trial balance table. The first column should be headed "months" and the first entry in the column should be the month that your loan closes. The first payment is due the month following the close. The next columns should be labeled "deposits" and "payments", respectively. The last column should be labeled "total."

Begin making entries. In the first column, list the 12 months following the closing month, in order. In the second column, next to each month, write the amount of your monthly escrow payment. For example, if your annual property taxes are $2,000 and your insurance is $400, your annual tax and insurance payments total $2,400. The monthly escrow payments are $200, because $2,400 divided by 12 months is $200. Therefore, in this example, each entry in the "deposit" column should read $200.

Write the tax and insurance payments in the appropriate months. Hazard insurance is paid out of escrow once per year, while property taxes are usually paid twice per year. The lender will pay these bills on the borrower's behalf, regardless of the escrow account balance.

Calculate the initial trial balance. The month of the close, the balance should equal the escrow cushion, which may equal as much as two months' escrow payments (in our example, this total is $400, which is $200 times 2 months). No, calculate the subsequent trial balances. Beginning with the month following the close, add the first escrow payment to the trial balance, continuing until the first insurance or tax payment appears. When this occurs, add in the monthly escrow payment and then subtract from the new trial balance the amount of the payment made. Repeat this process for all 12 months.

Analyze the chart. The low balance is the amount that must be brought to close in addition to the two-month cushion. Be patient here, and if you get frustrated, remember that the bank attorney will be happy to provide an accounting of how the escrow aggregate adjustment was calculated. You can also use an online calculator if you need help but don't want to engage in multiple mathematical operations.