What Is An Impound Escrow Account?

Whether opening escrow or applying for a mortgage, it is essential to understand all the moving parts, details and fees involved.  Many times, you’ll hear about impound accounts, so we want to explain them in detail. If you’d like to know what an escrow account or impound account is, please read below!

The terms Escrow Impound Account and Impound Account are used interchangeably, simply the same thing. It is an account established and managed by a mortgage company for the purpose of paying property taxes and insurance for a home buyer to ensure that both are paid in full and on time each year.

Many believe that the Impound Account has something to do with the escrow process, well in fact, it is a savings account attached to the mortgage loan account.  If a mortgage company and home buyer agree to implement an impound or escrow account, the mortgage company will calculate the monthly savings necessary to be collected each month (in addition to the Principal & Interest payment) in order to save enough funds to be able to pay for both insurance an property taxes for the following year.

 How Do I Pay for the Escrow or Impound Account?

Collecting monthly deposits for items such as insurance and property taxes can be very helpful for first time home buyers, this allows for easy budgeting especially when finances are tight.  First time home buyers are typically nervous at the thought of a new home, utility fees, maintenance costs and gardening; a great burden is lifted by knowing that homeowners insurance and property tax payments are including with the mortgage payment and will be managed by the mortgage company.

An amount equal to approximately 1/12th of the total sum of the annual property taxes and home insurance is collected monthly with your mortgage payment. When the annual property taxes and insurance are due, the payment is made by the lender on your behalf.

 How Is the Escrow Impound Account set up? 

During the application stage of a home mortgage, your mortgage representative will most likely give you the option of having an impound account; in some cases, mortgage companies may require an impound account in order to approve the loan. There is no charge for this account and in fact, a minimal interest rate will be earned while the funds accumulate in the account.

During the approval process, the mortgage processor will review loan pricing options that may require an impound account. Loan to value, credit score, and loan type may all be factors that may determine whether an impound account is necessary.

During the closing process, the mortgage company will instruct the escrow company to collect what is called an Escrow Impound Deposit; this may be 2 – 6 months of taxes and insurance. This will ensure that funds are sufficient to make the payments in full when they come due.

An impound account is a savings account held by your mortgage bank to pay your property tax and insurance bills when they come due.

During the homeowners insurance process, many home buyers ask us to explain the seemingly intimidating topic of impound accounts; in fact, it is a very simple savings vehicle to help you budget and keep out of trouble.  If you have any questions about the home buying process and need assistance with explanations, it is always our pleasure to help home buyers. Although we’d love to provide insurance for your home, there is never any obligation and in fact, you don’t even have to ask for a quote and we’ll be happy to help explain the process!