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Did you know that by setting up an impound account when financing or refinancing a property, you can save yourself some serious money?

Impound accounts (or escrow accounts) are set up to collect monthly property tax and insurance payments along with your mortgage. Lenders give discounts to borrowers for using these accounts because they make sure you don’t get behind on paying your property taxes or insurance. Depending on your property taxes and insurance, they can add several hundred dollars to your monthly mortgage payment. But since an impound account sets money aside to pay for taxes and insurance, there is no scrambling in November and March when property taxes are due.

So, how much could you save? If you were taking out a $300,000 30-year fixed rate loan on a house valued at $500,000, an impound account will shave .25% (a quarter of a point) off your rate. That’s a savings of $750/year or $22,500 over the life of the full loan.

Is it worth it? Let’s see …Assume that property taxes are $5,500 a year and insurance is $1,000, than an additional $541 would be collected if you have the impound account. If you put aside that same $541 in a savings account each month, these monies would earn about $90 a year in interest (assuming a bullish return of 4%). Over 30 years this translates into $2,700. So, by optioning out of an escrow account costs you almost $20,000. You would have to earn an annual return of over 33% on your savings to equal the quarter point reduction in interest rates.