What Is an Impound Account and How Does It Work?

When buying a home, you’ll hear plenty of terms thrown around by lenders and agents — and one that often confuses buyers is the impound account (sometimes called an escrow account). While it might sound complicated, an impound account is actually designed to make your life easier.

The Basics

An impound account is a special account your lender sets up to collect and hold money for your property taxes. Instead of paying this large bill once or twice a year, your lender divides the total amount into smaller monthly portions and adds them to your mortgage payment.

When your property taxes come due, your lender uses the funds in your impound account to pay them on your behalf. This ensures the bills are paid on time and you don’t get hit with any late fees or penalties.

The Benefits

1. Peace of mind – Your lender handles the payments, so you won’t have to remember tax deadlines.

2. Budgeting made simple – Spreading large annual or semi-annual costs over 12 months keeps your monthly expenses predictable.

3. Avoiding penalties – Since payments are automated, you won’t risk missing due dates.

Things to Keep in Mind

• Balance changes – If your property taxes go up or down, your lender will adjust your monthly payment after an annual review. You’ll receive an escrow analysis explaining any changes.

• Initial deposit – When your account is set up at closing, your lender will require a starting balance to cover upcoming bills, which is often two to three months’ worth of payments.

• Optional or required – Depending on your loan type and down payment amount, an impound account might be mandatory. For example, FHA and VA loans generally require them, while conventional loans may allow you to opt out if you have strong credit and put down at least 20%.

Should You Have One?

If you prefer simplicity and predictability, an impound account is a great option. But if you’re highly organized and like controlling your cash flow, you may prefer to handle your property tax payments on your own.

Either way, understanding how impound accounts work helps you make an informed decision — and keeps your homeownership journey smooth and stress-free.