May 23


Impound accounts are commonly referred to as escrow accounts. They are a type of account used to set funds aside to pay property taxes and insurance when due. These accounts can be required or optional, depending on the loan terms. 

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Charlotte, NC, is no different. Many homeowners use an impound account to ensure they don’t miss a payment and get behind on their taxes or insurance. 

In this article, I will explain what an impound account is and how it works in Charlotte, NC. 

What is an Impound Account, and How Does it Work?

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An impound account is a savings account used to pay taxes and insurance premiums associated with your property. This money is set aside in a separate account to be available when bills come due. 

The idea behind the impound account is to make it easier for homeowners to pay for these necessary costs. 

Lenders often require impound accounts to protect your investment. You must include an upfront deposit when setting up an impound account and additional funds each month so there is enough money in the account. This helps ensure all necessary expenses are taken care of. 

Having an impound account can be helpful because it simplifies payment processes. It eliminates late fees associated with missing payments. 

Here’s how an impound account works: 

Your lender will estimate your annual tax and insurance payments when you set up your escrow account. These estimated payments are divided by 12 months and added to your monthly mortgage statement. Your lender deposits this amount into your escrow account each month. 

This money is used to pay real estate taxes or insurance premiums when due. 

The amount deposited into the impound account each month may vary based on property taxes or insurance premiums changes. Your lender will adjust the payments so there’s enough money in the escrow to cover these costs. Share your insights! Complete our confidential buyer survey to get personalized assistance.

Are Impound Accounts Required in Charlotte, NC?

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Impound accounts can be optional or required depending on the type of loan is taken out. 

Government-backed loans like VA, FHA and USDA will require an impound account as part of the loan terms. 

Additionally, some lenders may require you to create an escrow account, depending on the size of your mortgage relative to your home value. In general, impound accounts are required if the loan exceeds 80% of the home value. This means you cannot opt out of having an impound account if you are taking out a large loan. 

What about loans less than 80% of the value? Impound accounts become optional in these cases. You can choose whether to set up an impound account for your loan.
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Lenders can also require homeowners to set up an impound account, even if it is not mandated by state or federal law. This usually depends on their internal policies or risk assessment of your financial situation. 

However, such cases are rare, as most lenders understand that setting up an impound account can be difficult for many homeowners. 

Other options are available if you are not interested in obtaining an impound account. One option is to pay taxes and insurance directly out of pocket each year, along with your mortgage payments. However, this carries additional risk because it requires more responsibility. 

Failure to meet these payments can result in late fees and/or foreclosure notices from your lender. 

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What is a Major Advantage of Using an Impound Account?

An impound account is an invaluable tool for homeowners to help manage their finances. It ensures that taxes and insurance payments are made on time. 

Impound accounts are set up so that homeowners can pay their taxes and insurance premiums in equal instalments instead of coming up with one lump sum payment. This can be helpful if you have limited disposable income or are trying to save money

Impound accounts also save homeowners from having to remember due dates. A mortgage lender manages an impound account and automatically takes care of payments. You don’t need to worry about missing payments or late fees. The lender takes care of all those details. 

Having an impound account also provides peace of mind and security against financial hardships in the future. Unexpected events like unemployment or medical emergencies can cause financial strain. This makes paying monthly bills difficult. Your taxes and insurance premiums remain paid on time with an impound account.

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Is There a Downside to an Impound Account?

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Impound accounts offer plenty of benefits but also have certain drawbacks. 

    1. One of the main drawbacks to having an impound account is the higher mortgage rate than you would pay without it. 

    1. Your lender may require you to pay extra fees for setting up and managing an impound account. 

    1. The rate of taxes and insurance premiums can fluctuate. Thus, your payments may vary each month. This can make it difficult to budget effectively. There could be months when you have to pay more and others when you pay less. 

    1. Lenders estimate how much money is needed in your impound account at closing. You could end up overpaying if their estimate isn’t accurate.

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What Escrow Accounts Don’t Cover

Escrow accounts are held by a third party to pay for home-related expenses, such as property taxes or insurance premiums. Having an escrow account can help you budget and anticipate your annual costs. However, there are other expenses related to homeownership that it doesn’t cover. 

Utility bills. Your water, electric, and gas bills aren’t covered by an escrow account. You need to ensure you have the funds to cover them. 

Homeowners Association Fees: HOAs manage a neighborhood and enforce rules associated with its development, like landscaping. HOA fees are separate from mortgage payments and are not included in escrow accounts. 

Maintenance costs: Escrow accounts don’t cover general maintenance costs like repairing broken appliances. You need to keep extra funds saved up for emergency repairs. 

What Happens With My Escrow Account After The Mortgage Is Paid Off? 

Mortgage escrows last for the duration of the mortgage term. 

There may still be money left over in your escrow account once your mortgage has been paid off. This happens when you’re making larger payments than were necessary. This excess money will be refunded to you within a couple of weeks after completing your loan payment.


You need to understand what an impound account is and how it works. An impound account isn’t for everyone, but this savings plan could be beneficial if you want convenience and peace of mind. 
Let Nancy and her Showcase Realty team help you easily navigate this tricky process. Our experienced real estate agents will guide you through your entire homeownership process. Contact us today at 704-286-9844.


Charlotte Real Estate, Nancy Braun, Real Estate, showcase realty

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