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Impound Accounts

Updated: Apr 1, 2019

At closing, you have the option to set up an escrow or impound account to pay your property taxes and homeowner’s insurance.  In general, property taxes are paid twice a year while home insurance is paid once a year.  When you have an impound account, the annual cost of your property taxes and insurance are divided into twelve equal payments and added to your monthly mortgage payment.   

Pros and Cons

It can be advantageous to impound property taxes and insurance.  Since you will be spreading the cost for property taxes and home insurance gradually throughout the year, you will lessen the shock of paying the large bills once or twice a year and are assured that the money will be there when the bills are due.

On the other hand, some homeowners would rather set money aside in an interest-bearing account and pay their property taxes and insurance independent of their mortgage payment.  The reason for this is that some states do not require lenders to pay interest on the money held in impound accounts and those that do may not pay as much as individuals could earn by investing the money on their own.

Required Mortgage Impounds

Some low down payment loan programs, including those offered by FHA and VA, usually require an impound account.

Monitoring Your Impound Account

Fortunately, it is easy to monitor your impound account, as your monthly mortgage statement will show the balance.

Is an Impound Account Right for You?

Many homeowners like to be able to impound property taxes and insurance and would have it no other way.  However, other homeowners feel that paying their property taxes and insurance independent from their mortgage payment makes better financial sense.  Ultimately it comes down to personal preference and what works best for you. 

We hope that you found this information beneficial.  If you have any questions about whether an impound account makes sense for you, please feel free to contact us anytime.

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