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Mortgage impound / escrow accounts are not always required.  When it is required or chosen by the borrower, how does the mortgage impound/escrow account help?

First, understand that monies in an escrow or impound account belong to you, not the lender, until they are paid to your county tax agency or insurance company.

A mortgage impound escrow account is often required by the lender for protection of collateral.  Borrowers often open mortgage impound escrow accounts for peace of mind by helping with continuity and consistency in meeting certain property expenses and fees.  Your mortgage servicer manages the on-going transactions of the escrow account.

Part of the mortgage payment, as determined at the closing, is held in this escrow account to cover on-going costs related to the property, such as insurance, taxes and other escrow obligations.  Since these payments are often due at various dates and intervals, a mortgage impound/escrow account manages the on-going transactions.

Mortgage servicing helps both the borrower and the lender.  The borrower does not have to worry about keeping track of the due dates, disbursing the payments or coming up with large sums of money to meet irregular payments.  The lessened risk of lapsed insurance or delinquent taxes protects the lender by keeping the collateral secure.

The escrow account will be analyzed annually to determine if the escrow payment needs to be adjusted or if there is a shortage or excess.  Generally, the escrow maintains some predetermined extra amount to ensure timeliness of payments.  If there is an escrow shortage, the borrower will be required to make up the difference.  Excesses will be refund.

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