What is an impound account for a mortgage?

An impound account, also known as an escrow account, is specifically designed to manage property-related expenses that the borrower is required to pay. This account is held by the lender and is used to collect and disburse funds for property taxes and homeowners insurance. When a borrower makes their monthly mortgage payment, a portion of that payment goes into the impound account. When property taxes and insurance premiums are due, the lender uses the funds in this account to pay these expenses on behalf of the borrower, ensuring that these obligations are met in a timely manner.

The other options do not accurately represent the function of an impound account. An account exclusively for loan repayments would not incorporate property taxes or insurance payments. An account for saving for future home improvements is unrelated to the lender’s role in managing taxes and insurance. Finally, an account for tenant security deposits pertains to rental properties, not mortgage accounts. Understanding the purpose of an impound account is crucial for mortgage borrowers, as it helps streamline the management of their property-related financial responsibilities.