Should I Impound my Taxes and Insurance?

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Is it better to impound my property taxes and homeowners insurance into my monthly mortgage payment?




Many of our clients prefer to have their taxes and insurance impounded in their monthly loan payment (the lender adds 1/12 of your property tax and homeowners insurance bills to the normal payment, sets them aside in an escrow account and then pays the bills for you when they are due).  Some rule it out and prefer to handle the payments themselves.  It usually comes down to a decision of whether you find it more convenient to pay the bills on your own or prefer to lessen the pain and pay them monthly with your mortgage payment.

Here’s the reality when refinancing.  If you are doing an FHA loan or a loan with Private Mortgage Insurance, you have no choice.  Impounds are required.  If you are doing a conventional loan, lenders offer a .25 point fee incentive to set up an impound account which means that the rate that you lock in at costs you .25 points less.  For example, on a $200,000 mortgage, opting to set up an impound account will save you $500.  This is definitely worth considering!

2 comments

  1. keith turgiss 26 September, 2012 at 06:46 Reply

    What about when a non institutional lender using a non
    conforming product makes a loan arent there rules baswed on the APR that require that there be impounds for T I.

    • Bill Lewis 27 September, 2012 at 11:23 Reply

      Yes, REG Z of the TILA does require “higher priced” mortgage loans to have an escrow account for taxes and insurance.

      APR threshold raised for determining higher-priced jumbo loan impound requirement

      12 Code of Federal Regulations 226.35(b)(3)
      Amended by H.R. 4173
      Effective: April 1, 2011

      A jumbo loan secured by a borrower’s principal residence with an annual percentage rate (APR) 2.5% (raised from the prior 1.5% threshold) or greater than the average prime offer rate for a comparable loan is considered a higher-priced mortgage subject to mandatory impound requirements.

      This regulation does not apply to bridge loans with a term of 12 months or less, or reverse mortgages.

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