Impound Accounts

If you are getting a loan to purchase a property, your lender may require an “impound account” on your loan. An impound account is simply a forced-savings plan for you to make sure that there is money available to pay your property taxes and homeowner’s insurance premium when they come due. Your lender collects 1/12th of the annual amounts due from you each month and hangs onto the money until they are due. Then your lender writes the checks on your behalf.

Some lenders require this, others leave it as optional. Some financial gurus will tell you it’s better to pay it yourself, so you have the use of that money during the year. That way you can earn the interest on the money, or otherwise earn some kind of return on the funds. Well, this may sound good, but the actual dollars are pretty inconsequential. Keep in mind that you don’t keep the full amount in there all year, it grows 1/12th each month. It only becomes the full amount at the end before the payments are made.

Where are you going to put that money? A savings account? We are talking literally tens of dollars for the year in earnings at the average brick-and-mortar bank. Are you going to play the stock market with the funds? Sure, the market was up BIG last year, but what if it’s down this year? Most financial experts are strongly against putting funds in the stock market that you would need back within a year.

When you first buy a property (or close on your refinance), you may need to pre-pay some of the impound payments depending what month it is. If you are closing escrow in January, that won’t be enough time to fill up the impound account before your semi-annual tax bill is due in February.

If you have questions about real estate, call me at (925) 240-MOVE (6683). Voted “Best of Brentwood” multiple times. To search the MLS for free, go to: www.SharpHomesOnline.com. Sharp Realty. #01245186

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