An impound account is a unique bank account designed to hold funds for property-related expenses such as taxes and insurance. It functions as a piggy bank that the bank manages and uses to cover your bills.
An impound account, also known as an escrow or reserve account, is a type of account that holds accumulated funds for the payment of periodic debts against real property. These debts can include taxes or insurance. The lender is responsible for holding the funds and making the necessary payments on behalf of the borrower. For instance, homeowners with a mortgage may be required to have an impound account to ensure timely payment of property taxes and insurance premiums. The borrower makes monthly payments to the lender, which includes an allocated amount for taxes and insurance. The lender then holds these funds in the impound account and makes the payments when they are due. Similarly, in the construction industry, contractors may require an impound account to ensure timely payment to subcontractors and suppliers. The project owner deposits funds into the account, and the contractor utilises these funds to pay the subcontractors and suppliers.
An impound account, also known as an escrow account, is a separate account set up by a lender to hold funds for property taxes and insurance premiums.
Lenders require impound accounts to ensure that property taxes and insurance premiums are paid on time, reducing the risk of the property being uninsured or subject to tax liens.
The funds in an impound account are used to pay property taxes and insurance premiums when they come due.
In some cases, borrowers may be able to opt out of having an impound account, but this may result in a higher interest rate or additional fees.
The amount for the impound account is typically calculated based on the annual property tax and insurance costs, and may also include a cushion to cover any potential increases in these expenses.
Borrowers do not have direct access to the funds in an impound account, as they are held by the lender for the specific purpose of paying property taxes and insurance premiums.
If there is a surplus in the impound account, the lender may refund the excess funds to the borrower or apply it towards future property tax and insurance payments.
If there is a shortage in the impound account, the borrower may be required to make up the difference in a lump sum or through increased monthly payments.
Borrowers may be able to request changes to their impound account settings, such as adjusting the monthly contribution amount or removing the impound account altogether.
When the mortgage is paid off, any remaining funds in the impound account may be refunded to the borrower.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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