Impound

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DEFINITION

An account maintained by mortgage companies to collect amounts such as hazard insurance, property taxes, private mortgage insurance and other required payments from the mortgage holders; these payments are necessary to keep the home but are not technically part of the mortgage. Impound accounts are often required of borrowers who put down less than 20%, but are usually optional in other cases. The purpose of the impound account is to protect the lender. Because low down-payment borrowers are considered high risk, the impound account assures the lender that the borrower will not lose the home because of liens or loss, as the lender pays insurance, taxes, etc. from the impound account when they are due.

INVESTOPEDIA EXPLAINS

Though the impound account is designed to protect the lender, it can also help the mortgage holder. By paying for these big-ticket housing expenses gradually throughout the year, the borrower avoids the sticker shock of paying large bills once or twice a year, and is assured that the money to pay those bills will be there when they need it. However, if the mortgage company does not pay these bills when they are due, the borrower will be held responsible, so borrowers should keep an eye out to make sure their mortgage companies are fulfilling their end of the bargain.


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