What is an escrow or impound account?

Answer:

An escrow account, sometimes called an impound account depending on where you live, is set up by your mortgage lender to pay certain property-related expenses.

The money that goes into the account comes from a portion of your monthly mortgage payment. An escrow account helps you pay these expenses because you send money through your lender or servicer, every month, instead of having to pay a big bill once or twice a year. 

Many lenders require that you pay your taxes and insurance using escrow, so they can make sure that the bill gets paid. Your mortgage servicer will manage the escrow account and pay these bills on your behalf. Sometimes, escrow accounts may also be required by law.

Your property taxes and insurance premiums can change from year to year. Your escrow payment—and  with it, your total monthly payment will change accordingly.

In addition, if you fail to pay your taxes or insurance, your lender may:

  • Add the amounts to your loan balance
  • Add an escrow account to your loan
  • Purchase new homeowners insurance for you and bill you for it. This lender-purchased insurance, known as force-placed insurance, is typically more expensive than homeowners insurance you pay on your own. 

Was this page helpful to you?

Note: Do not include sensitive information like your name, contact information, account number, or social security number in this field.

The content on this page provides general consumer information. It is not legal advice or regulatory guidance. The CFPB updates this information periodically. This information may include links or references to third-party resources or content. We do not endorse the third-party or guarantee the accuracy of this third-party information. There may be other resources that also serve your needs.

Read full answer Hide full answer