Can Mortgage Impounds Get You a Better Mortgage Interest Rate?

By Sheryl Landrum Columnist

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Underwriting guidelines for lenders have tightened over the flood of recent mortgage foreclosures. Many lenders have also dropped home loan programs that are equated with a higher risk of mortgage foreclosure such as short term adjustable and option ARMs (adjustable rate mortgages). Mortgage loan foreclosures are not specific to homeowners unable to make their mortgage payments, however; the inability to pay property taxes, HOA assessments and dues, and homeowner's insurance can also cause foreclosure.

Mortgage impounds are the monthly amount added to a mortgage payment for property taxes and insurance. The lender than pays the quarterly, semi-annual or annual installments of property taxes and homeowner's insurance premiums. To secure their investment, lenders prefer to impound these amounts and make sure that taxes and insurance are paid. You can get a better rate by opting for impounds, and if your equity is insufficient you may be required to have them.

Adding the cost of monthly impounds to a mortgage payment will make your monthly "nut" more expensive; however, it can help to ensure all your home loan costs are met on a monthly basis and will reduce the risk of defaulting on taxes and insurance which can lead to foreclosure and other problems. You can add impounds retroactively if you want and you can usually reduce your interest rate when opting for impounds on your new home loan.

About the Author
Sheryl Landrum is a Senior Loan Officer with Charter Funding, Inc. in Carlsbad, California and a freelance writer on mtgage issues.

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