What is a mortgage impound account?
A mortgage impound account — also called an escrow account — is a separate account managed by your mortgage servicer that collects a portion of your property taxes and homeowners insurance premiums with each monthly mortgage payment, then pays those bills on your behalf when they come due.
Instead of receiving a large property tax bill twice a year and scrambling to cover it, your lender spreads those costs across your 12 monthly payments. The funds sit in the impound account until the servicer disburses them directly to the taxing authority or your insurance carrier.
At Pike Creek Mortgages in Newark, DE, we walk every borrower through exactly how their impound account is structured before closing — so there are no surprises on day one of homeownership.
What does an impound account typically cover?
Most impound accounts are required to cover at least two recurring obligations tied to your home: property taxes and homeowners insurance. Depending on the loan type and lender, additional items may also be escrowed.
- Property taxes — New Castle County and local municipal taxes assessed annually or semi-annually
- Homeowners insurance premiums — your standard hazard policy renewed yearly
- Flood insurance — required by lenders when a property sits in a FEMA-designated flood zone
- Private mortgage insurance (PMI) — sometimes collected through the impound account on conventional loans with less than 20% down
Not every borrower will have all four items in their impound account — your specific obligations depend on your loan program, your property’s location, and your down payment amount.
When does a lender require an impound account?
Lenders typically require an impound account when a borrower puts down less than 20% on a conventional loan, and it is almost always mandatory on FHA, VA, and USDA loans regardless of down payment size.
From a lender’s perspective, the impound account protects their collateral. If property taxes go unpaid, a tax lien can take priority over the mortgage. If homeowners insurance lapses, the property is unprotected. Requiring escrow eliminates both risks by ensuring those bills are never missed.
Some borrowers with strong equity positions — typically 20% or more — can waive escrow on a conventional loan, sometimes in exchange for a small rate adjustment. Pike Creek Mortgages, an NMLS Licensed Lender serving Newark, DE and the surrounding area, can clarify whether waiving escrow makes financial sense for your specific loan profile.
How is my monthly impound payment calculated?
Your servicer estimates the total annual cost of your property taxes and insurance, divides that figure by 12, and adds the result to your base principal-and-interest payment — that combined amount is what you pay each month.
Federal law under RESPA (the Real Estate Settlement Procedures Act) limits how large an impound cushion a servicer can hold to no more than two months of escrowed payments. At closing, you will typically prepay an initial deposit to fund the account — this is separate from your down payment and closing costs, and it is one of the line items we review carefully with borrowers before they sign.
Because Delaware property tax rates vary by municipality and reassessment cycle, your impound payment can shift from year to year. Your servicer is required to send you an annual escrow analysis statement explaining any change.
What happens if there is a shortage or surplus in my impound account?
If your property taxes or insurance premiums increase during the year and your servicer has not collected enough to cover them, you will have an escrow shortage — and your servicer will either ask for a lump-sum catch-up payment or spread the difference across your next 12 monthly payments.
A surplus occurs when the servicer collected more than needed. Under RESPA, if the surplus exceeds $50, the servicer must refund it to you within 30 days of the annual escrow analysis. Surpluses of $50 or less can be applied to your next year’s escrow balance instead.
Knowing this cycle in advance helps you budget accurately — and it is exactly the kind of detail covered in our broader guide to understanding your monthly mortgage statement.
Does an impound account cost extra?
The impound account itself does not carry a direct monthly fee in most cases, but there are two cost-related factors worth understanding before closing.
First, at closing you will prepay an upfront escrow deposit — typically 2 to 3 months of estimated taxes and insurance — to establish the account buffer. This is a real out-of-pocket cost that should be factored into your total cash-to-close figure. Second, if you are on a conventional loan and choose to waive escrow where your lender allows it, some lenders charge a small pricing adjustment (often expressed as a fee or a slight rate increase) for accepting that additional risk.
On net, most borrowers find impound accounts beneficial because they eliminate the risk of a large, unexpected tax or insurance bill derailing a monthly budget — particularly in the first few years of homeownership.
Can I remove my impound account later?
On a conventional loan, you may be eligible to cancel your escrow account once you reach 20% equity in the property, assuming your loan has been in good standing and your servicer’s guidelines permit it.
FHA loans originated after June 2013 with less than 10% down require escrow for the life of the loan. VA loans almost always require escrow as well. If you refinance into a conventional product with sufficient equity, escrow removal may become an option at that point. As with all mortgage decisions, the right answer depends on your loan type, current equity, and financial situation — our licensed team at Pike Creek Mortgages in Newark, DE can run through your specific scenario before you make a request to your servicer.
This guide was prepared by Pike Creek Mortgages, NMLS Licensed Lender, serving Newark, DE and the greater New Castle County area.
Frequently Asked Questions
What is a mortgage impound account?
A mortgage impound account (also called an escrow account) is a lender-managed account that collects a portion of your property taxes and homeowners insurance with each monthly payment and pays those bills on your behalf when they come due.
Is an impound account the same as an escrow account?
Yes — impound account and escrow account refer to the same thing. The term ‘impound account’ is more commonly used on the West Coast and by certain lenders, while ‘escrow account’ is the standard term used in most federal disclosures and across the mid-Atlantic and Delaware markets.
How much do I need to deposit into an impound account at closing?
Most lenders require an upfront escrow deposit of roughly 2 to 3 months of estimated property taxes and insurance at closing to establish the required cushion — this amount is separate from your down payment and should be included in your total cash-to-close calculation.
What happens if my impound account has a shortage?
If your taxes or insurance increase and your servicer has not collected enough to cover them, you will receive a shortage notice after the annual escrow analysis — you can either pay the shortfall as a lump sum or have it spread across your next 12 monthly payments.
Can I opt out of an impound account?
Borrowers on conventional loans with at least 20% equity may be able to waive escrow, though some lenders charge a small fee or rate adjustment to do so. FHA and VA loans generally require an impound account for the life of the loan or until refinancing into a qualifying conventional product.
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