What Is an Escrow (Impound) Account?

An escrow account (also known as an impound account) is a financial arrangement where your lender collects funds each month to pay for property taxes and homeowners insurance on your behalf. This makes budgeting easier because instead of paying large bills once or twice a year, you're spreading the cost out over 12 monthly payments.

Here’s how it works: your monthly mortgage payment includes principal, interest, and a portion that goes into the escrow account. When your taxes or insurance premiums are due, your lender pays them directly. This helps prevent missed payments and tax liens — protecting both you and the lender.

Most lenders require escrow accounts for loans with less than 20% down. It’s essential to know that escrow amounts can change if property taxes or insurance rates go up. If this happens, your monthly payment may increase to cover the difference.

An escrow account offers peace of mind and predictability. However, you should always check your annual escrow statement to ensure accuracy and avoid surprises.