By Jennifer Tucker
December 27, 2022
If you’re a new homeowner or first-time homebuyer, you might wonder if mortgage insurance and homeowners insurance are the same. Both are important to protect your financial investment, but the two types of coverage are very different. Understanding the distinction between them will ensure you get the right coverage.
Let’s look at the difference between homeowners insurance and mortgage insurance to understand how each type of policy works, what the requirements are, and answer some frequently asked questions.
The key difference between home insurance and mortgage insurance is who the policy protects. Homeowners insurance protects the homeowner, and mortgage insurance protects the lender.
Homeowners insurance covers damage to your home, property, and personal belongings in your home. It also provides you with liability coverage against claims like accidents or injuries that occur on your property.
Mortgage insurance protects the lender if you’re unable to pay your mortgage. Also known as private mortgage insurance (PMI), this type of insurance is usually required if you make a lower down payment on the home you’re buying.
The main advantage of having home insurance and mortgage insurance is to protect the financial investment you’ve made in your property.
Homeowners insurance coverage protects you if something unexpected happens to your home or property. It provides coverage for your home, belongings, and detached structures on your property. If you incur a loss, you can file a claim with your insurance company and potentially receive payment for covered losses, minus any deductible and up to the policy’s coverage limit.
Home insurance isn’t mandated by law, but many lenders require you to have a homeowners insurance policy. Plus, it’s a smart financial investment. Your home is one of your most valuable assets, and you want to protect it!
Many homeowners want to know what to expect when shopping for homeowners insurance coverage. On average, a homeowners insurance quote is likely to come in around $1,300 in annual premiums for $250,000 in coverage.
You want to have enough insurance coverage to fully cover the costs of rebuilding your home if disaster strikes. As a homeowner, you are responsible for paying homeowners insurance premiums, and the payments will be made to your home insurance provider.
Homeowners insurance covers your home, property, and personal belongings in your home. It may also provide you with liability coverage against claims like accidents or injuries that occur on your property.
Most homeowners insurance policies cover:
The most common homeowners insurance claims are related to damage from:
When you get a home loan, the lender takes a risk that you will honor the terms of your loan and make your monthly mortgage payments. If you incur a financial hardship and cannot make your mortgage payments, the mortgage insurance company will pay the lender on your behalf.
A lot of homeowners wonder, “Is mortgage insurance required?” Mortgage insurance is typically required when you’re making a down payment of less than 20% of the home’s purchase price. If you take out an FHA loan or USDA loan and make a down payment of less than 20%, you will also have to pay mortgage insurance premiums.
Many lenders allow you to cancel your PMI after you’ve paid off a certain about of your loan (usually 22%).
Homeowners who are required to purchase private mortgage insurance want to know how much they can expect to pay for their mortgage insurance premium. On average, mortgage protection will cost 0.2% to 2% of your original loan amount.
Your mortgage insurance premium is fixed for the duration of your policy, so it won’t go up or down. As a homeowner, you are responsible for paying your premiums, and the payments are made to your mortgage lender.
The mortgage insurance premiums you pay protect your lender if you incur a financial hardship and cannot make your mortgage payments.
Using a free online calculator to estimate your monthly mortgage payments can help you understand what you can afford.
Mortgage insurance is typically required when you’re making a down payment of less than 20%. However, there are a few ways to avoid paying PMI:
Marine Credit Union can help you find the right mortgage loan to reach your goals. Keep your loan in the community. Get in touch with a Marine Credit Union lender today.