What is an escrow impound account?
An escrow impound account is an account that can be set up with your new home loan that will pay your property taxes and/or insurance for you by collecting 1/12th of the annual property taxes and/or insurance along with your mortgage payment. This account is set up at the loan closing and is designed to make sure that your property taxes are always paid on time and your insurance is always current.
There is no fee for setting up an impound account and the account can be set up to collect property taxes alone, homeowners insurance alone or both property taxes and insurance. Most homeowners elect to include both property taxes and insurance.
It is not mandatory to set up an escrow impound account and you can elect to pay property taxes and insurance on your own. Please be aware that there is generally a slight cost to waive the impound account. Click Get Started to compare interest rates with and without an impound account.
How is the monthly amount calculated?
To calculate how much your escrow impound account will cost, simply divide the annual property taxes and/or insurance by 12 months. This will give you the dollar amount that needs to be collected each month to ensure there are sufficient funds in the impound account to pay your property taxes and/or insurance when they are due.
What is an escrow impound deposit?
When the escrow impound account is first set up, a deposit of 2-6 months worth of property tax and/or insurance payments is placed into the account. This is known as the escrow impound deposit. This additional pad ensures there are sufficient funds in the account to pay the property taxes and/or insurance in full. Because property taxes can be adjusted annually and insurance rates also change, it is important to have a pad in the account to ensure there is not a shortfall and therefore a lapse in insurance coverage or a delinquency in property taxes.
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