"What are impounds? Am I required to pay them?"

Many borrowers choose to set up an escrow or impound account with their lender to handle their property taxes, homeowner's insurance, or both because it makes the process of paying for taxes and insurance much simpler than making the lump sum payments of property tax and hazardinsurance which would otherwise be required. Impound and escrow accounts (which are two names for the same thing) allow the borrower to split the large lump sum payments in 12 monthly installments, ensuring that taxes are always on time and homeowner's insurance is always paid up.

If you are allowed to waive the impounds or escrows this option will make your monthly payments lower. However this is not always the best choice for all borrowers. If you choose to waive the escrows, you are still responsible for coming up with the lump sum to pay your property taxes, and home owners insurance when they are due. In some areas this may only amount to a couple hundred dollars to a thousand dollars, while other areas the property taxes alone can be over $10,000. Weigh both options carefully when making that decision.

Escrowing for taxes and insurance is a way to reduce risk for your mortgage lender. Escrowing insures that funds will be available to pay for your home insurance and property taxes when they come due. Many lenders will waive this requirement if you are below an 80% loan-to-value for a small fee.

When you own a home, you are responsible for paying for hazard insurance and property taxes. If you include these in you monthly mortgage payment, they are called impounds. Yes, you are required to pay them.

If you chose to include taxes and insurance in your monthly mortgage payments, the lender will set up and escrow account to hold the money and pay your taxes and insurance when they are due.

Some lenders will allow you to pay your taxes and insurance separately.

 

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