Escrow (Impound) Account

Many borrowers are confused why their mortgage payment is so high. It's often because it includes more than just the loan repayment.The Concept: A "forced savings account" managed by the lender.The Purpose: The lender collects 1/12th of the estimated annual Property Taxes and Homeowners Insurance every month along with the mortgage payment. When the bills are due, the lender pays them for you from their Escrow (Impound) Account where they hold the money they have collected from you. Why lenders do it: To protect themselves. They want to guarantee that the taxes are paid (so the government doesn't seize the house) and the insurance is active (so the house is covered if it burns down).