What are Impounds?

Setting up an impound account (also known as “escrow account”) with your loan payment servicer is a way to include property taxes and homeowner’s insurance in your monthly mortgage payment. With impounds, your mortgage payment will include a monthly amount for taxes and insurance. Then, your mortgage loan payment servicer will make the lump sum payouts to the tax assessor and insurance company when the premiums come due every year.  When setting up your impound reserve account, the lender has to forecast the due dates and collect enough reserves from you up front so that they have sufficient funds to pay out the taxes when they come due. This will add more in funds up front at the closing of your loan, however the benefit is that it avoids your having to personally pay large tax and insurance bills during the year when it may be inconvenient to do so. You won’t need to pay your insurance or property taxes out of pocket ever again since they will be rolled into your mortgage payment each month.

If you are putting less than 10% down on your home, in most cases the lender will require you to set up an impound account for your taxes and insurance. If you have a down payment of more than 10% on your home, impounds are optional for you. Deciding on whether to have impounds is a question of your comfort level in coming up with large sums throughout the year to cover your taxes and insurance versus paying a larger monthly mortgage payment. There is no additional cost nor benefit to having impounds versus not having them. If you would like more guidance on whether an impound account is right for you, please give us a call.

Updated on: 01/11/2021