What will a lender do with the tax and insurance portions of a monthly mortgage payment?

A lender will keep the tax and insurance portions of a monthly mortgage payment in an impound account until the payments for property taxes and homeowners insurance are due. This practice is common because it helps ensure that these essential expenses are paid on time, thereby protecting both the borrower and the lender’s investment in the property.

When homeowners make monthly mortgage payments, the lender typically collects a portion designated for taxes and insurance, which is included in the total monthly payment. This allocated amount is then placed into an impound or escrow account. As property taxes and insurance premiums come due, the lender uses the funds in this account to pay those bills directly, ensuring that they are settled promptly. This arrangement offers a level of convenience and financial discipline, as borrowers do not have to remember to set aside these funds themselves, reducing the risk of tax lien or lapse in insurance coverage.

Other options do not reflect the common practices associated with mortgage payments. For instance, keeping funds for immediate expenses is typically not the case; these funds are specifically reserved. Sending funds back to the borrower after a year or returning them at closing is not standard procedure, as these payments are meant to be used for ongoing property-related costs. Thus, maintaining them in an impound account is the most secure