What is the primary purpose of an escrow impound account?

• A. To collect and pay property taxes and insurance when due.
• B. To accumulate maintenance reserves.
• C. To hold security deposits from tenants.
• D. To fund capital improvements.

Answer: (A)

An escrow impound account is used to ensure that ongoing property costs are paid on time by setting aside monthly funds from the mortgage payment specifically for taxes and insurance. Lenders often require these deposits so there’s always enough money to cover the annual or semiannual tax bills and insurance premiums when they come due, with the lender or loan servicer handling the payments. This arrangement helps protect the property (the lender’s collateral) and makes budgeting easier for the borrower by spreading large bills over the year. It’s not intended for maintenance reserves, tenant security deposits, or funding capital improvements, which are separate types of funds.