Escrow balance the servicer expects the account to need at a specific point in the escrow projection.
Target escrow balance is the escrow balance the servicer expects the account to need at a specific point in the escrow projection.
Target escrow balance matters because escrow analysis is not just a review of past transactions. The servicer is projecting whether the account will have enough money at key points after expected collections and bill payments.
It also matters because the target can include a permitted Escrow Cushion. Borrowers may think the account is being overfunded when the servicer is actually trying to keep the account from falling below the projected minimum.
Borrowers may see target escrow balance on an Annual Escrow Statement or escrow-analysis worksheet after the loan is in servicing.
The term becomes practical when comparing the current Escrow Balance with the servicer’s projection and trying to understand why the monthly escrow payment changed.
| Term | Borrower-facing distinction |
|---|---|
| Target escrow balance | Planned balance needed at a point in the projection |
| Projected Escrow Balance | Forecasted balance after expected collections and payments |
| Low-Point Balance | Lowest projected balance during the escrow cycle |
| Escrow Cushion | Permitted buffer that can affect the target |
An escrow analysis shows that the account is expected to drop close to zero after a property-tax payment. The servicer sets a target balance that includes enough funds to keep the account from falling too low.
Target escrow balance differs from Escrow Balance because escrow balance is the current account amount, while target balance is a projected need.
It differs from Escrow Cushion because the cushion is a buffer, while the target balance is the account amount the servicer is aiming to maintain at a point in the schedule.
It also differs from Escrow Shortage because shortage is the gap when projected funds are insufficient, while target balance is part of the projection used to find that gap.