What Is an Impound Account Mortgage?

The responsibilities of home ownership include more than mortgage payments. Additional costs include property taxes and homeowner's insurance. Impound mortgage accounts allow these additional bills to be paid by a third party, which is usually the lender.

Function

Impound mortgage accounts, also known as escrow accounts, are established between the homeowner and a lending institution. At the time of the loan's closing, the buyers deposit money into the account. This money will be used to cover any taxes and insurance fees due at the time.

Features

Because property taxes and homeowner's insurance premiums are usually due once or twice a year, they are lump sums. The impound account option will allow the homeowners to pay smaller amounts each month toward the lump sum. The amount is added onto the monthly mortgage payment made to the bank.

Payments

When taxes or homeowner's insurance is due, the bank or lending institution will pay the fees with the money in the impound account. The payments are made directly to the municipality or insurance broker by the bank.

Considerations

Not every lender requires their borrowers to pay into impound accounts. If homeowners have the option not to use an impound mortgage account, they will be responsible for paying property taxes and insurance fees when they are due.

Benefits

With an impound account, insurance and tax bills will always be paid on time. Escrow accounts also allow the homeowner to spread payments to the lump sum out over a year's time so they less of a financial burden.

References

• Investopedia: Understanding Mortgage Impound Accounts

Resources

• Fannie Mae: Understanding Escrow