Impounds, also called escrows or impound accounts, are separate savings accts the lender sets up to collect your mthly taxes & insurance alongside your mortgage. When those annual/bi-annual tax & insurance bills are due, the bank pays them for you using those stockpiled funds. They’re marketed to you as convenience, but they also protect the lender by ensuring they have funds to pay the bills if you stop making your pmts.

Key Takeaways:

• Impound accounts are what the bank uses to pay your bills if you begin to default on your loan.

• When a purchase or refi is closed, the lender collects 2-3mo worth of taxes and insurance and sets them aside in a separate acct.

• Impound accounts can be waived if your credit & financial pictures are strong, BUT it often costs a little extra.

Though it's true if you miss a pmt or two you can make it up w/ little consequence, let's pretend it wasn't a fluke, you lost your job and can no longer pay your mgt. Your property taxes and insurance are still due. If the home is repossessed by the bank, they’re still stuck with any unpaid taxes and insurance, as well as the associated late fees.

'impounds' are the solution most lenders use to make sure this isn't a problem. At closing, the consumer funds a separate acct with 2-3mo of tax & insurance pmts. This way, any hiccups in loan pmts are covered and banks make pmt so consumer don’t have to worry about it.

Impound accts are borrower-funded accts the bank uses to pay your tax and insurance bills automatically. Every month, your mortgage stmt will reflect your mortgage pmt and the mthly cost of your current taxes and insurance bill. When taxes or insurance bills are due, the bank pays them for you using those stockpiled funds.

When a purchase or refi is closed, the lender collects 2-3mo worth of taxes and insurance and sets them aside in a separate acct. if you begin to default on your loan..