Impound Account
An impound account, also called an escrow account, is a separate account held by your mortgage lender where funds are collected monthly to pay property taxes, homeowner's insurance, and sometimes mortgage insurance. The lender collects a portion of these annual costs with each monthly mortgage payment and pays the bills when they're due.
Example
“The mortgage company collects an extra $300 monthly for the impound account to cover property taxes and insurance premiums.”
Memory Tip
Think of an impound lot where cars are held - an impound account is where your tax and insurance money is 'held' by the bank.
Why It Matters
Impound accounts help you budget for large annual expenses by spreading the cost over 12 monthly payments, and they ensure these critical payments are never missed.
Common Misconception
Some homeowners think the money in their impound account belongs to the lender, but it's actually your money being held in trust to pay your bills.
In Practice
If your annual property taxes are $3,600, your lender will collect an extra $300 each month with your mortgage payment and deposit it in your impound account to pay the tax bill when it's due.
Etymology
Impound comes from the Old French 'empounder' meaning 'to shut up in a pound or enclosure,' reflecting how money is held separately and securely by the lender.
Common Misspellings
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