Also known as an escrow account, an impound account is basically a bank account that your lender uses to make payments on your property taxes and insurance. You, the borrower, make monthly payments to cover your mortgage, insurance, and taxes. The lender then makes the separate payments on your behalf.
An impound has quite a few benefits:
- Payments are always made on time. For a homeowner, the list of monthly bills to track and pay may seem overwhelming. An impound account will help to make sure you never miss a mortgage, insurance, or tax payment.
- Equally spread payments. Around the holiday season a tax payment is the last thing on a homeowner’s mind. Having an impound account will help to make sure your budget is not spread too thin.
Some cons include:
- Less funds for investments. If you’re a savvy investor or have opportunities to save and earn interest, making regular payments to your escrow account can mean less funds per month to save or invest.
- A substantial deposit. Every impound account is different, and the amount required to open an account can vary, usually based on the time of your.
Would we recommend having an impound account?
Usually an impound account is not required if you have ten percent or more equity in your home. If you make a low down payment on your FHA loan, say 3.5%, you are required to have an impound account. This is a requirement that gives a lender security in knowing that you won’t fall behind on or miss your insurance or tax payments. A lender wants to see that you have property insurance in case of an accident that can damage or destroy their investment.
But if you can choose between having an impound account or not, we would recommend discussing your unique situation with your lender or mortgage broker.