What is the primary purpose of an escrow or impound account?

The primary purpose of an escrow or impound account is to manage monthly insurance and tax payments. This type of account is established by lenders to collect and hold funds from the borrower alongside their mortgage payments, specifically to ensure that insurance premiums and property taxes are paid on time.

By collecting these payments on a monthly basis, the lender can ensure that these critical obligations are met. This protects both the lender's interests, as it minimizes the risk of defaults due to unpaid taxes or insurance, and the borrower's interests, as it simplifies their budgeting and ensures they do not fall behind on necessary payments.

In contrast, other choices like holding the buyer’s down payment, securing the loan amount, or paying closing costs, refer to different financial processes and obligations that do not align with the specific role of an escrow or impound account.