A. The first step in completing your escrow analysis is projecting the amount of your tax and insurance bills for the upcoming 12-month period. We calculate the minimum acceptable balance, or cushion, in your escrow account for the year. Under federal law, we require a cushion of 1/6 of the year's projected escrow disbursements, or, a two-month cushion. This cushion covers unexpected or increased disbursements, or disbursements we make before your payment arrives. The cushion amount may vary if your loan documents or applicable state law differ from federal law. Mortgage insurance (PMI or MIP) is not considered in calculating the Minimum Balance, and there is no cushion for mortgage insurance.