What is an Impound Account?

Most people dream of having their own home. To buy their own home, they usually get a mortgage loan. However, owning a home with a mortgage does not necessarily mean that people will get their deposit back for good. When people buy a home with a mortgage loan, but they only put a down payment of less than 20 percent of the home value, they may have to make an additional deposit to what is called the “impound account,” also known as escrow account. Technically, the account is not part of the mortgage. The account will be maintained by the mortgage lender to pay for various insurance and taxes. The costs of each type of insurance are divided into a monthly amount and the mortgage lender will add them to the borrower’s mortgage payment.


Impound account is required for borrowers with low down payment because mortgage lenders consider them as borrowers with higher risk. Mortgage lenders consider an impound account as an additional level of assurance that the state government will not take the property for property taxes problems. An impound account also ensures mortgage lenders that the homeowner has adequate home insurance so that in case the property is damaged, everything will be covered by the insurance company. With an impound account, the mortgage lender will become the owner of the property if the borrower default on his or her mortgage loan.

Some people would rather set aside some money themselves, so that they can save it in a saving account with high interest. In some states, mortgage lenders are not required to pay interest on the borrowers’ money that is held in impound accounts, so that it became a profitable asset to them. Borrowers that are required to deposit some money to an impound account can monitor their impound account balance from their monthly mortgage statement. To ensure that borrowers are being treated fairly, federal regulations require mortgage lenders to review impound accounts annually. If the amount of money in an impound account is too little, the mortgage lender will ask more money to the borrower. But if an impound account accumulates too much money, the excess funds must be returned to the borrower.