If you’ve been doing some research on home loans or you’ve talked to a mortgage consultant before, then you’ve probably come across the term, “impounds” or “impounded mortgage payments” and you might have wondered what that means.
Impounds refer to the payments of taxes and insurance that you make within your mortgage payment addition to the principal and interest on the loan.
Depending on your loan scenario, the bank might require you to have an “impounded” payment where you are paying Principal, Interest, Taxes and Insurance in your mortgage payment, and usually the bank will want you to pay impounded payments when you put less than 20% down on a property if you’re buying or if you have less than 20% equity in your property if you’re refinancing.
If you’re making a large down-payment, or you have a good amount of equity in the property, you might not have to make these impounded payments, and you’d just have to make sure that you pay your property tax and insurance bills as they become due.
If you do have an impounded payment, this means that there is going to be an escrow account, where a certain amount of your funds will stay. The amount of funds that you will initially need to put into this escrow account is determined by the time of the year that your loan funds. The monthly impound payments you make for property taxes and insurance, will go to this escrow account, and the escrow account will in turn pay your property taxes and insurance as they become due.