What it is:
In theworld, an impound is an account that companies use to collect property , homeowners insurance, private and other payments that are required by the homeowner but are not part of and interest. Impound accounts are also called accounts.
How it works/Example:
Let's say John Doe buys a house and borrows $100,000. The interest rate is 4%, and the
John Doe didn't down 20%, so the requires an impound account. Every month, another $250 is deducted automatically from John's checking account and in the impound account. This ensures that the is there to pay the insurance and property tax bills when they arrive every six months.
Why it matters:
Impound accounts mitigate a collateral for the ) due to tax liens or unpaid insurance bills. Usually, the mortgage lender is responsible for paying the tax and insurance bills out of the impound account on time; however, if the mortgage lender fails to do so, the homeowner is still on the hook.
Usually, require impound accounts when the borrower down less than 20% on a house. If the borrower down more than 20%, impound accounts aren't always required, though they are often convenient for ensuring that the bills are paid.