• Escrow impound accounts have both advantages and disadvantages.Cash flow image by Blue Moon from Fotolia.com
  
  

Escrow Impounds Benefit New Homeowners

• Homeowners unaccustomed to paying real estate property taxes---and saving up for them---benefit from escrow impound accounts. A portion of the annual property tax bill (1/12) is added to the mortgage bill each month.The lender saves the money in a bank account and pays the bill on the owner's behalf. Owners and lenders benefit from the convenience of sending a lump sum to the lender each month and not having to worry about having the money when the bill arrives, or paying it late.
  
  

They Don't Pay

• Some states require lenders to pay interest on the money held in escrow impound accounts. However, the rates are typically very low. A financially savvy borrower will earn more by forgoing the lender's escrow account and putting the money in a high-interest-bearing account. Also, lenders often collect a cushion, an amount in excess of the actual tax bill, to ensure there is enough money to pay the taxes if the homeowner misses payments.
  
  

Bottom Line

• If the lender requires you to open an account because you are a first-time buyer or have a high-loan-to-value loan (one that equals or exceeds the value of your home), it may be better to do so, because the lender will often require you to pay a fee to waive the escrow requirement. Unless you can earn sufficient interest elsewhere to offset this cost, it's worth it.