What is an Impound Account?

When you obtain a mortgage to purchase a home, part of your agreement with a lender is that you pay your annual property taxes timely and maintain a homeowner’s insurance policy to protect you/the lender from potential future damages.

Impound Account

You may have seen the term PITI – this stands for Principal, Interest, Taxes and Insurance.

Your mortgage payment without impounds is composed of principal and interest – when your mortgage payment also includes your property taxes and insurance, the taxes and insurance are placed in an impound, or escrow, account held by the lender.

Then when your property taxes and insurance payments come due, the lender pays these amounts out of the balance in your impound account. Many people prefer to structure their mortgage payments to include property taxes and homeowners insurance to avoid that large payment that comes due once or twice per year.