Mortgage Insurance vs. Homeowners Insurance: How They Are Different
Buying a home is one of the biggest investments, and taking out insurance is an important way to safeguard your investment. There are two main types of home insurance, Mortgage and homeowner’s Insurance. Mortgage insurance, also known as private mortgage insurance (PMI), protects the lender if you default on your mortgage and cannot pay it back. Homeowner’s insurance or house insurance is meant to cover any damages and disaster damage that might happen in your home or property.
Many people confuse mortgage insurance with homeowners insurance. But they’re not the same, and they should be considered case-by-case.
Five Differences Between Mortgage Homeowners Insurance
- Mortgage Insurance is designed to protect against default by your lender. House Insurance protects against damage or loss from fire, theft, vandalism, and other risks. Mortgage insurance, also called private mortgage insurance or PMI, protects the lender from financial loss if you default on your loan. It’s required for loans where less than 20 percent of the home purchase price is paid upfront and for borrowers who can’t make a large down payment. Homeowners insurance protects contents in your home and may also cover other personal property such as jewelry or electronics. They may also cover additional living expenses if you vacate your property due to a fire or other disaster.
- Mortgage Insurance usually has a low deductible and can be paid in installments over a long period of time. Homeowners insurance usually has a high deductible and is paid up-front. Mortgage insurance is typically required if you make a down payment of less than 20% on a home purchase. Mortgage insurance generally lasts for one year, but many lenders require borrowers to pay for it over the life of their loan, which can run into years or decades. Paying that mortgage insurance isn’t exactly free. Lenders charge a monthly mortgage insurance premium based on the amount of your loan and the term of your loan. Whereas, homeowners insurance is usually required when you take out a new mortgage. Home insurance in South Florida typically lasts for ten years or until the end of the loan term, whichever is longer. If you sell or refinance before the end of your policy period, most insurers will ask to see proof that you found a new home buyer in time to replace you under your old policy.
- Mortgage insurance is paid from the proceeds of the new loan and its impact on your credit score. It is a separate payment for which you must account and pay tax. Homeowners insurance is not taxed by the federal government but can increase premiums for borrowers denied at closing because of a higher risk score from the insurer.
- Mortgage Insurance may cover a mortgage that the policyholder does not own. Homeowners insurance only covers policies owned by you or your family.
- Mortgage Insurance may cover a loan that is secured by the property. Homeowners’ insurance may not be extended to cover a loan secured by the property.
It’s essential to consider Mortgage Insurance and Homeowners Insurance when purchasing a house to protect yourself and maintain financial stability. If possible, shop around for home insurance South Florida quotes to find the coverage you want at an affordable price. Contact ZK & Associate today to learn more about Mortgage or Homeowners Insurance, including their deals.