What is it? If you make a minimum down payment when you purchase your home or condominium, you may be required to deposit funds into an impound account, which the lender can use for your homeowners insurance, property taxes and mortgage insurance. This account reassures the lender that there always will be sufficient funds to pay your bills when they are due and that the policies cannot be cancelled without the lender’s knowledge.
How can it help you? Although an impound account is designed to protect the lender, it also can be beneficial for you as the borrower. An impound account enables you to pay for large homeownership-related expenses gradually throughout the year without worrying that the money for the bills won’t be there when you need it. Furthermore, you already will have paid your premiums to the lender a few months in advance, which adds protection in case your financial situation becomes difficult over time. You will not risk having your policies cancelled; the impound account serves as a financial “cushion”. Inaddition, federal regulations require the lender to review your account annually to ensure the correct amount of money is being collected and may even offer you a better interest rate if you agree to the impound account.
What are the drawbacks? Because an impound account means you pre-pay your premiums, that money is not in your own account earning interest during those months. Additionally, the lender is the one in charge of making your payments. While this can be seen as beneficial, it also can serve as a disadvantage, especially for those who like to be in control of their own payments and ensure that they are paid on time. Furthermore, the lender determines the monthly amount by estimating the annual tax and insurance payments and dividing them by 12. This amount is added to your monthly principal and interest rate. However, the actual costs can fluctuate, and you may end up depositing more money than necessary into the account upfront. While some appreciate the security, others can view this as reason not to have an impound account.
Mass Home provides a list of lenders throughout the state. Additionally, Mass.gov is a good resource for prospective home buyers.
Because there are pros and cons to impound accounts, it is important to discuss it with your insurance agent to find out if one is right for you. Vargas & Vargas Insurance is committed to providing excellent customer service,working directly with individuals and ensuring they
