What is an impound account?

An impound account, also known as an escrow account, is a type of account established by lenders to collect funds from borrowers in order to pay for property-related expenses such as property taxes, homeowner's insurance, and mortgage insurance. The impound account is usually included in the borrower's monthly mortgage payment.

The purpose of the impound account is to ensure that these property-related expenses are paid on time and in full. Lenders typically require borrowers to have an impound account when the down payment is less than 20% of the purchase price of the property.

The borrower's money in the impound account is held separately from the lender's funds, and the lender is responsible for making the payments from the impound account when they become due. Lenders may require an initial deposit into the impound account at the time of closing, and may also reconcile the account annually to adjust for changes in property tax assessments and homeowner's insurance premiums.

While impound accounts can add to the borrower's monthly mortgage payment, they can also provide peace of mind by ensuring that property-related expenses are paid on time and in full.