Consumers Sometimes Confused By Impound Accounts

May 18, 2007

 Many home buyers are confused by a mortgage lender’s insistence that they set up an impound or escrow account to collect monies needed for property tax payments and hazard insurance premiums. Buyers often sign up for mortgages they can barely afford. After shelling out for their mortgage principal-interest payments each month, there is little left to pay those periodic bills for taxes and insurance. This situation often evolves into liens being placed against the property, and that could lead to foreclosure proceedings.

To avoid that problem scenario, lenders are increasingly insisting that special accounts are set up for the payment of those costs. Money is collected every month, as part of the buyer’s mortgage payment, to accumulate the funds needed to make those tax payments and insurance premiums. Those monthly payments are over and above regular payments for principal and interest, and are put into a special impound or escrow account.

Another problem incurred by homeowners who get behind in their payment of insurance premiums is that the insurer might cancel the policy. In that event, the mortgage lender usually has the right to replace the coverage with a company of their choice, and that premium will probably be much higher – sometimes twice – the amount charged for the original policy.

Posted in All Things San Diego, Helpful Hints, Lending, Local Business, Real Estate, Taxes, Things of Interest