What are “impounds”?
A. Impounds are the part of your monthly house payment that cover Home Owners Insurance and Property Taxes. This is calculated by taking your annual payment amount and dividing by 12. Sometimes, for a higher rate, the lender will allow borrowers to pay insurance and taxes themselves. However, lenders prefer to collect these in monthly istallments and pay them when due. This ensures that these are paid on time and prevents tax leins or lapsing of insurance. Typically, at closing, lenders will collect whatever is currently due plus 2 months extra for reserves or what should have been collected since the last due date for the insurance or taxes plus 2 months extra for reserves. You will always have this 2 months extra in reserves for as long as you have the loan. This allows the lender to pay your taxes and insurance on time even if you should pay your mortgage payment late.
