Business and Personal Finance Dictionary

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• TAX AND INSURANCE IMPOUNDS
  
  One month's worth of your yearly tax bill and your yearly homeowner's insurance premium will be added to your loan payments. As an example, if your property taxes are $2,000 per year and your insurance premium is $600, one month's worth (1/12th) of each is $167 and $50. The lender collects these with your monthly payment and holds them in a special account ("an impound account"). The money in the account will be used to pay your taxes and insurance premiums when they become due. Here's why taxes and insurance are collected along with your principal and interest payments: If your taxes are left unpaid, your state can foreclose on your property in order to obtain payment. If the foreclosure is successful, the lender could lose his collateral. In other words, if you're not making your payments, the lender could not recoup his loss: the state's foreclosure supercedes his. The lender also wants to make sure your insurance premium is always paid. If a fire destroys your property, he'll have lost his collateral, but the insurance company should repay his loan.
  
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