Lender Tax and Insurance Escrows (Impounds) on an Apartment Loan
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An apartment loan can come with more than a principal and interest payment. Many lenders also collect money each month for property taxes and insurance and hold it until the bills are due. That account is called an escrow or an impound. It is not the same as the investor escrow that holds an offering's funds before closing. This post explains the lender's account, what it does to cash flow and what to check in the loan terms. It is part of our guides to apartment loans. General information, not legal or investment advice.
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Three different "escrows"
| Name | Who holds it | Purpose |
|---|---|---|
| Investor escrow | An escrow bank, for the offering | Holds investor wires before closing. See syndication escrow |
| Tax and insurance escrow (impound) | The lender | Pays property tax and insurance bills |
| Replacement reserve | The lender or the deal | Pays for planned capital repairs |
How it works
- At closing, the lender collects an initial deposit that covers the bills coming due and a cushion.
- Each month, the borrower pays principal and interest plus a share of taxes and insurance.
- When a bill comes due, the lender pays it from the account.
- Once a year, the lender reviews the account and adjusts the monthly deposit.
A hypothetical example
This is an illustration with made up numbers, not a quote. A building has $240,000 of annual property taxes and $90,000 of annual insurance. The monthly deposit is ($240,000 plus $90,000) divided by 12, or $27,500. If the lender also holds a three month cushion, the closing deposit for this cushion would be $82,500 ($27,500 times 3), on top of any bills already due.
Now suppose a reassessment raises taxes to $300,000. The new monthly deposit is ($300,000 plus $90,000) divided by 12, or $32,500. That is $5,000 more each month, and the lender may also ask for a catch up on the part already underpaid.
What it does to the deal
- Raise size. The closing deposit is part of the cash you need. Put it in sources and uses.
- Cash flow timing. Money leaves each month instead of in a few large payments, which smooths cash but removes flexibility.
- Reassessment risk. Taxes can rise after a sale. See property tax reassessment.
- Insurance risk. A renewal can jump. See insurance renewal.
- Debt ratios. Lender tests use total payments and net operating income, so higher taxes and insurance reduce coverage. See DSCR loans.
What to check in the loan terms
- How big is the cushion at closing?
- Does the account earn interest, and who keeps it?
- How and when is the monthly deposit adjusted?
- Can the borrower pay taxes or insurance directly in some cases?
- What happens if a bill is higher than the account balance?
- Are closing deposits itemized in the loan estimate? See loan closing costs.
How DoorRaise fits in
DoorRaise does not collect taxes or insurance. The loan terms are between the sponsor and the lender. DoorRaise handles the raise, the deal company, the investor paperwork and escrow of investor funds at Enterprise Bank & Trust. Sponsors pay a flat $1,500 setup fee and a flat $5,000 yearly administration fee.
Frequently asked questions
Is a lender escrow the same as the escrow for the raise?
No. The lender's escrow pays property bills after closing. The raise escrow holds investor wires until the deal closes.
Does the lender pay me interest on the account?
It depends on the loan terms. Ask in writing.
Can I avoid the monthly deposit?
Sometimes, with conditions. Ask the lender during the term sheet stage.
Sources
This article is general information as of November 2026, not legal, tax or investment advice. Every investment can lose money. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.