An impound escrow is a special account in which a mortgage company holds payments related to your home. Funds are typically held for property taxes, homeowner’s insurance and mortgage insurance. It’s not unusual for such an account to be a part of your loan agreement, and since you have to pay those things anyway, an impound account isn’t all bad. If your lender doesn’t force an impound account on you, setting up a savings account on your own is another way to handle the situation.
How Much Should Be in Escrow?
The basic amount that should be in your escrow account is the total of your annual costs for taxes and insurance on your house. Lenders also like to keep a bit of a cushion in the impound escrow account, and the law allows them to add another one-sixth of the annual total to your bill. If your annual costs are $1,200, you’d be putting in $100 a month. A cushion could add another $200 a year to this, making your payments about $117. Your escrow account should never have more than the base amount plus the cushion (in this case, $1,400).
How Long Should Escrow Take?
There is no set length of time for how long an impound escrow should take. This is not only an optional fund; it is also ongoing. Your impound account is collected along with your monthly mortgage payment, and it normally lasts as long as your mortgage lasts. Once a year, your lender will send you a report on your escrow, and any excess over $50 has to be refunded to you at that time.
How Long Does It Take to Get an Escrow Back After Refinancing?
When you refinance your mortgage, you’re drawing a line in the sand and starting all over with new payments, and perhaps a new impound escrow account. This means that the old impound escrow is no longer valid, and your lender has to return whatever is in the account to you in a timely fashion. The Department of Housing and Urban Development says that the lender has 30 days to return the impound money to you. Be aware that if the lender has just made a payment, as sometimes happens, you may not get any escrow money back.
Can You Write Off Escrow Accounts for Taxes?
You may be able to write off escrow amounts for taxes, but it depends on some factors: If the money goes to pay your property taxes or mortgage insurance, the answer is yes, since these qualify as a deduction. If the money goes to pay non-deductible expenses like homeowner’s insurance, the answer is no, because this is never a write-off. Be aware that even if it’s an expense the IRS says is okay, it only counts when it’s actually paid out, not when you pay into escrow.
Can You Borrow Against Your Escrow?
Since your impound escrow account works like a savings account and holds a bunch of your money, you may wonder if you can use it to secure a loan. While this is up to the individual lender in every case, the answer is almost certainly "no." This isn’t a static account full of cash. The whole point of an escrow impound is to make sure the money is there when it’s needed. It can’t be used to pay your bills if it’s securing a loan.
- U.S. Department of Housing and Urban Development: FAQs About Escrow Accounts for Consumers
- American Homeowner’s Association: Escrow Refund
- Bankrate: Escrow Makes Payments – Even on Fixed-rate Mortgages -- Variable
- IRS: Tax Information for Homeowners
- Orange County Register: Should You Have an ‘Impound’ Account?
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