Homeowners Insurance vs. Mortgage Insurance
Both mortgage and homeowner’s insurance may raise the cost of property ownership, and you’ll probably run across both while applying for a mortgage. But that is the extent of their resemblance.
While mortgage insurance, also known as private mortgage insurance (PMI), protects your mortgage lender in the event that you fall behind on your mortgage payments, homeowner’s insurance covers your house and its belongings.
Mortgage insurance versus homeowner’s insurance
Despite their similar names, homeowners insurance and mortgage insurance are very different.
Homeowners insurance: what is it?
A type of property insurance called homeowners insurance is intended to shield your house and its belongings against harm brought on by unanticipated circumstances. Furthermore, the majority of homeowners insurance protects you from legal action in the event that someone is injured on your property. Additionally, it protects your house and belongings from costs associated with loss or damage.
Your following may be covered by a homes insurance policy:
The structure of the home
Individual possessions
Liability in court for harm you, your loved ones, and your pets inflict on others
Medical costs in the event that someone gets injured at your house
Additional living costs while your house is unusable
What Is Mortgage Insurance?
A little different is private mortgage insurance (PMI), sometimes referred to as mortgage insurance. In the event that you are unable to make your mortgage payments, mortgage insurance is meant to protect the bank or lender.
A homeowner with PMI usually makes an annual payment equal to a fraction of their whole mortgage total. If they are unable to make mortgage payments, the insurance company will then make the payment on their behalf. Adding PMI to your monthly bills may raise the cost of house ownership.
Do I Need Mortgage Insurance?
Borrowers who provide a down payment of less than 20% of the home’s purchase price are usually obliged to obtain mortgage insurance, depending on the lender. If the equity in your house is less than 20% of its worth and you are refinancing or taking out a traditional loan, private mortgage insurance, or PMI, is required. The equivalent of PMI, a mortgage insurance premium (MIP), is always needed for Federal Housing Administration (FHA) mortgage loans.
Because they see mortgages with less than a 20% down payment as risky and want insurance in case you are unable to make your payments, lenders impose PMI.