What is escrow /impound account?

Have you ever heard of an escrow impound account? If not, you may want to make yourself aware of what it is before selling or buying a home. This is because it could be quite beneficial in some situations. Here's an in-depth look at what an escrow impound account is and in what types of situations it may be helpful.

 What is an escrow impound account?

An escrow impound account is a type of account that establishes terms which allow you to pay property taxes and/or homeowners insurance by automatically collecting a percentage of the annual total along with your monthly mortgage payments.

 Are there any applicable fees?

Setting up an escrow impound account is conveniently free and easy. You can choose to have just property taxes collected each month, just your insurance payments collected or a combination of both collected. If you are being charged to set up an escrow impound account, you are better off looking for a new lender or agency to work with. There should be no reason to charge you for incorporating this type of account when going through escrow. In fact, most agents encourage their clients to set them up because they're free and they're essential when it comes to making you “attractive” to lenders. If you opt to forego the setting up of an escrow impound account, be aware that you will be responsible for your entire tax or insurance bill all at once.

 How is the amount per month calculated?

Calculating how much will be added to your mortgage bill each month with the use of an escrow impound account is fairly simple. All you have to do is divide the annual cost of property taxes and/or insurance by 12 (months of the year). The 1/12^th percentage will be what is applied to your monthly mortgage payments.

 What is an escrow impound deposit?

Generally, all escrow impound accounts have to be opened with a deposit that will cover about 2-6 months of the tax/insurance totals. Opening an account with a healthy deposit protects you in case you there were ever a situation to occur that involved you not having the funds to cover the payment. This also provides you with a little cushion since taxes and insurance rates can sometimes fluctuate throughout the year.

            Escrow impound accounts are popular among homeowners because they let them have peace of mind when it comes to keeping up with the expenses needed to maintain good standing with their mortgage lenders. The terms for the account are usually discussed prior to you applying for a loan, and lenders are more inclined to approve loans for those who have already agreed to setting aside taxes and insurance payments month to month. This is because their risks are lowered when they are assured you will be covered by an escrow impound account. It's also helpful for homeowners because they won't have to pay up for an annual tax payment or insurance payment upfront. An escrow impound account instead allows homeowners to distribute the costs throughout the year to make them more bearable.