What are Mortgage Impound Accounts and How May They Help Avoid Home Mortgage Foreclosures?

By Sheryl Landrum
Mortgage Credit Problems Columnist

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There are other issues involved with the high rate of mortgage foreclosures than just sub-prime adjustable mortgage loans that borrowers can no longer afford. In order to keep mortgage payments lower, many lenders have allowed these same borrowers to waive mortgage impound accounts that collected monthly payments for property taxes and insurance. Borrowers are now struggling to make higher mortgage payments and to pay thousands of dollars in property taxes and insurance as well increasing their risk of a home foreclosure.

Avoiding foreclosure means more than making the mortgage payment. If borrowers become delinquent with their property taxes and/or their homeowner's insurance they can end up in home foreclosure. If your homeowner's insurance is not paid, the lender will put a policy on your home (usually at a much higher rate than what you can get yourself) and will add the cost of the insurance to your monthly mortgage payment. Likewise, if your property taxes become delinquent, the assessor's office can lien your property and force the foreclosure of your home in order to pay the lien. How do impounds help avoid home foreclosure?

Monthly installments can help avoid mortgage foreclosures as payment for taxes. And insurance is collected on a monthly basis versus an annual, or semi-annual, payment. Even homeowners with plenty of funds can get pinched when annual taxes and insurance come due. In California, where the average home price is high and the tax base is approximately 1.125% of the purchase price, property taxes are expensive. On a $750,000 home, property taxes will run $8,437.50 per year and insurance on the property will run approximately $920 per year for a total of $9,357.50. That's $780 a month to cover the cost. You can see how borrowers at home foreclosure risk can increase their vulnerability by waiving collection of these monthly costs.

Don't worry about being doomed to the failure of mortgage foreclosure if you currently are without impounds; impounds can be added retroactively by your lender. If you are concerned about the added risk of foreclosure and would like to take preventative steps to avoid it, contact your lender today about establishing your mortgage impound account.

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