The Not So Well Known Mortgage Tool That Millions Of Homeowners Use

When you set up your mortgage, you had the option to include your property tax and insurance payments in with your monthly payment – even though they are only due annually or semi-annually. This is called an impound account and in this case your mortgage lender collects those payments on a monthly basis so you never have to worry about making large lump-sum payments all at once. In this week’s video, Jamie Cavanaugh explains the basics of why impound accounts are so popular, why they’re not right for everyone, and what you need to know before you close your loan.

Transcript:

Hey, it’s Jamie Cavanaugh from Amerifund and today I want to talk about impound accounts. You may also hear them referenced as escrow accounts. Many people don’t know what an impound account is, but it’s an essential part of the mortgage process.

When you buy a home, you’re responsible for paying the property taxes to the local tax assessor, and in most cases, taxes are due in 2 equal installments twice per year. At least that’s the case in most California counties. As an example, if you buy a $500,000 home you’re looking at a little over $6,000 in annual property taxes.

The same goes for home insurance. If you have a mortgage on your property, you are required to have home insurance to cover damage to your property in the event of a fire. Most insurance premiums are due once a year.

This amounts to a lot of money to come up with all at once. And that’s the reason many homebuyers choose to use impound accounts. By impounding your mortgage loan, you have the option to break your tax and/or your insurance payments up into 12 equal payments and include that cost with your mortgage payment every month.

Your mortgage company sets these payments aside in your impound account, and when the tax installments and insurance premiums become due, your mortgage company will take that money and use it to pay those bills on your behalf.

If you choose tax and insurance impounds, then for the life of your loan, as long as you continue to make your mortgage payment and renew your home insurance policy, your lender will continue to collect and pay your taxes and insurance on your behalf, and you won’t have to scramble to come up with lump sums of money at the last minute.

It seems like a simple enough process, so what are the downsides? Well, impound accounts can be helpful for most homebuyers, but it’s important to know a few things.

First, depending on the time of year that your loan is closing, the lender may need to collect several months of taxes and/or insurance up front so that they have enough money to cover your tax and insurance bills later in the year when they are due. Also, they never want your impound account to be zero, so they’ll require a cushion, which is usually two months, to remain in your Impound account at all times.

If you are buying or refinancing a home and have questions about whether tax or insurance impounds and whether they’re the right option for you, give us a call today.

Thanks for watching and tune in next week for another weekly mortgage update from Amerifund.

 

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