What are escrow or impound accounts and how much do I need in my escrow account?
Escrows or impounds are payments made by a borrower to a lender for the purpose of paying the borrower’s taxes, insurance, and other payments associated with home ownership. The lender is responsible for the timely disbursement of escrow funds to pay the borrower’s bills as they come due. Usually, a mortgage company collects funds for placement into the mortgagor’s escrow account with the mortgagor’s periodic payment for principal and interest. An escrow account has sufficient funds if there is enough to pay all bills when they come due. It is common practice for mortgage companies to hold an escrow cushion for a borrower. The cushion is kept by the mortgage company to assure that if the cost of any escrowed item were to increase in the future, there would be sufficient funds to pay all bills as they come due.
