Escrows & Impounds – The Bottom Line

September 2, 2011/Scott Sheldon

Everyone hates paying property taxes. Property taxes are due twice a year on April 10 and on December 10. So if you have a mortgage in place already or are thinking about getting one, consider getting an escrow account set up a monthly basis. This will help you secure the best possible interest rate. Escrow accounts are actually required on transactions with less than 20% equity.

What is an escrow account and why do they matter?

They matter because if you allow your mortgage lender to collect for property taxes and insurance on a monthly basis with your mortgage payment, they get to use that money and invest it for themselves. They will reward you for this by giving you a slightly better interest rate than if your property taxes and insurance are paid separately. It depends on what time of the month and what part of the year you’re closing your mortgage loan on. We usually estimate for about six months of property taxes as a prepaid items because they are due no matter what.

For example on a purchase scenario we will collect for six months of property taxes as well as for a few months of hazard insurance and this will be a prepaid item that will show up on the final closing statement at the close of escrow. The reason is because the lender needs to estimate however many months worth of property taxes or insurance is due for you to get caught up with the billing cycle.

Are escrow accounts ever waived?

The answer is yes if you have 20% equity in your property or more you can get property taxes and insurance removed from your house payment. You can set up the mortgage with property taxes and insurance included with your house payment and then when you’re first bill comes you can call up your mortgage lender and request the removal of your impounds.

Lots of borrowers today find having a monthly account for property taxes and insurance included with their house payment to be easier because they’re not getting a surprise check twice per year. It’s all a matter of preference. If you have less than 20% equity in your property you must have property taxes and insurance included with your house payment.

If you have any questions about property taxes or are in need of a quality home mortgage loan give me a call Scott Sheldon mortgage lender at 707-217-4000. We can discuss escrows and impound accounts and get to the bottom line.

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RELATED MORTGAGE ADVICE FROM SCOTT SHELDON

When buying a home, it’s natural to want the lowest mortgage rate possible. But sometimes, chasing a slightly better rate from another lender—especially after your offer has already been accepted—can backfire in a big way. Let’s walk through a real-world scenario. You’ve got an offer accepted on a house. You’re working with a lender who has you approved, documents in underwriting, and a 21-day close of escrow in place. Everything is moving forward. Then you hear from another lender offering a rate that’s 0.25% lower, with slightly better closing costs. It’s tempting. But before you make a jump, here’s what you need to consider. Switching Lenders Comes with Time Costs When you pivot to a new lender mid-contract, they’ll need to: Re-underwrite your entire loan, Order a new appraisal, Disclose and sign new loan documents, Submit the file for final loan approval, Schedule and fund closing—all over again. This doesn’t happen overnight. Even in ideal circumstances, the new lender is likely going to need at least 25–30 days to close. If you’re in a fast-moving or competitive market, this is a real problem. Most sellers won’t grant a contract extension just because you’re switching lenders. So, what happens next? A Contract Extension Can Jeopardize Your Deal Asking for a contract extension means the seller must agree to delay closing. But that delay introduces risk—especially if the seller has backup offers or simply wants certainty. They may not grant the extension. Or worse, they could cancel the deal outright and take another buyer’s offer. Even if the seller agrees to extend, your earnest money and negotiation power could take a hit. And for what? A slightly lower rate that might save you $50 to $75 a month? Mortgage Rates Aren’t as Far Apart as You Think Here’s the truth: all mortgage lenders get their money from the same place—the bond market. The pricing differences between lenders usually range from 0.125% to 0.25% in rate on any given day. If one lender seems to be offering dramatically better pricing, the first thing you should ask is: How? Head over to FreddieMac.com and check the average 30-year fixed rate posted weekly. This is one of the most reliable benchmarks for where rates truly stand in the market. If a lender is quoting you a rate that’s well below that average, ask for the details: Are they charging extra points? Is this a teaser rate with a prepayment penalty? Is it based on a different loan product or risky structure? Often, what sounds “too good to be true”… is. Consider the Bigger Picture Think long-term. If you’re financing $600,000, a 0.25% lower rate may reduce your payment by roughly $75/month. But what if you lose the house and have to start over? That monthly savings doesn’t mean much if you’re outbid on your dream home or lose your deposit. Also, remember: you’re not going to keep this rate forever. Today’s homebuyers typically refinance when rates drop by about 0.75% or more. So if rates fall within the next year or two, you’ll likely be refinancing anyway. Instead of paying extra points now or risking the entire deal for a minor monthly savings, it may be better to accept a slightly higher rate—knowing you’ll refinance when the time is right. The Real Risk Isn’t the Rate—It’s the Delay When shopping for a home loan, don’t just ask, “What’s your rate?” Ask: Can you close on time? Is this rate sustainable or based on hidden costs? Will switching lenders delay or jeopardize my contract? A home purchase contract is a binding agreement between you and the seller to perform within a set timeframe. If you can’t meet those dates because you're chasing a slightly better rate elsewhere, you may want to reconsider if now is the right time to buy. Final Thoughts Yes, interest rates matter. But execution matters more. Before making a switch mid-transaction, talk to your lender. Have an honest conversation about pricing, timelines, and strategy. You might find that staying the course, securing the house, and planning to refinance later offers a better path to financial security. Want to Know Your Options? Let’s compare rates and strategies the smart way—without risking your dream home. 👉 Click here to get a custom rate quote today.

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4 Comments

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    […] Taxes-refers to the monthly property taxes built into the house payment, oftentimes deemed an impound or escrow account […]



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    […] Taxes — The monthly property taxes built into the house payment, often termed an impound or escrow account. […]



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    […] Taxes — The monthly property taxes built into the house payment, often termed an impound or escrow account. […]



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    […] Taxes — The monthly property taxes built into the house payment, often termed an impound or escrow account. […]



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