Impound Account: How Mortgage Escrow for Taxes and Insurance Works
Last updated 07/21/2026 by
Andrew Latham
Edited by
Andrew Latham
Summary:
An impound account is a lender-managed account that collects part of your mortgage payment to pay your property taxes and homeowners insurance when they come due.
It is also called an escrow account, and it spreads two big annual bills across twelve smaller payments.
- What it covers: Property taxes and homeowners insurance, and sometimes flood insurance or mortgage insurance.
- Who requires it: Most FHA and VA loans, plus conventional loans with a small down payment.
- How it is funded: A portion added to your monthly mortgage payment, held until bills are due.
An impound account takes the sting out of large, irregular bills by turning them into a steady monthly amount. The trade-off is less control over that money and a slightly higher monthly payment.
What an impound account is
An impound account is money your lender sets aside from each mortgage payment to cover your property taxes and homeowners insurance. The lender pays those bills for you when they are due.
The term impound account is used mostly on the West Coast, while most of the country calls the same thing an escrow account. They work the same way.
The goal is to protect both you and the lender. Unpaid property taxes can create a tax lien that outranks the mortgage, and a lapsed insurance policy leaves the home unprotected.
How an impound account works
Each month you pay one amount that includes principal, interest, taxes, and insurance, often shortened to PITI. The tax and insurance portions go into the impound account.
When your property tax and insurance bills arrive, the lender pays them from that balance. Once a year, the lender reviews the account in an escrow analysis.
- Shortage: If bills rose, you may owe a lump sum or see your monthly payment increase.
- Surplus: If the account holds too much, the lender refunds the difference.
- Cushion: Federal rules let the lender keep a reserve of up to two months of payments.
According to the Consumer Financial Protection Bureau, the two-month cushion is the maximum a servicer can require under the Real Estate Settlement Procedures Act.
When an impound account is required
Whether you must have one depends on your loan type and down payment. Government-backed loans almost always require it.
| Loan type | Impound account rule |
|---|---|
| FHA loan | Required |
| VA loan | Typically required |
| Conventional, less than 20% down | Usually required |
| Conventional, 20% or more down | Often optional, may cost a fee to waive |
Even when you can waive it, some lenders charge a small fee to opt out. A larger down payment is usually what unlocks that choice.
Pro Tip
Review your annual escrow analysis line by line. Lenders estimate future tax and insurance costs, and an overestimate ties up your cash in a low-value account all year. If your account shows a large recurring surplus, ask the servicer to recalculate the monthly amount rather than waiting for the next refund.
Deciding whether to keep or waive an impound account comes down to how you prefer to manage large bills.
How to decide whether to waive an impound account
- Confirm you are eligible: You generally need 20% equity and a conventional loan to waive it.
- Compare the waiver fee: Weigh any one-time fee against the flexibility of managing the money yourself.
- Judge your saving habits: Waiving works best if you reliably set aside money for large annual bills.
- Check for rate impact: Some lenders offer a slightly lower rate when you keep the account.
- Set your own reminders: If you waive it, calendar the tax and insurance due dates so nothing lapses.
Keeping the account is the low-effort choice, while waiving it rewards disciplined budgeting.
Related reading on home financing
- Property tax explains the larger of the two bills an impound account usually covers.
- Closing costs cover the upfront escrow deposit you often fund at signing.
- Mortgage points show another way your monthly payment and upfront costs interact.
Frequently asked questions
Is an impound account the same as escrow?
Yes. Impound account and escrow account describe the same thing, a lender-held account that pays your property taxes and insurance. The word impound is more common in western states.
Can I cancel my impound account?
Sometimes. If you have a conventional loan and at least 20% equity, many lenders let you cancel, though some charge a fee. Government-backed loans usually do not allow it.
Why did my mortgage payment go up?
The most common reason is an escrow shortage after your property taxes or insurance premiums rose. The lender raises the monthly amount to refill the account and cover the higher bills.
Do I earn interest on an impound account?
In most states, no. A handful of states require lenders to pay interest on escrow balances, but many do not.
Key takeaways
- An impound account is a lender-held escrow that pays your property taxes and homeowners insurance.
- You fund it monthly as part of your mortgage payment, and the lender pays the bills when due.
- Federal rules cap the reserve cushion at two months of payments.
- FHA and VA loans require one, as do most conventional loans with less than 20% down.
- An annual escrow analysis can raise or lower your payment based on tax and insurance changes.
Escrow rules and pricing differ from one lender to the next, and they can shape your monthly payment more than you expect. You can compare mortgage lenders to find terms that fit how you want to handle taxes and insurance, and SuperMoney’s mortgage industry study tracks how borrowing costs are shifting.
Andrew is the Content Director for SuperMoney, a Certified Financial Planner®, and a Certified Personal Finance Counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.
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