Homeowners insurance and mortgage insurance are both types of insurance that can add to the cost of owning property, and you’re likely to encounter both during the mortgage procesꦛs. However, that’s where their similarity ends.

Homeowners insurance protects your home and its contents, while mortgage insurance, also called 澳洲幸运5官方开奖结果体彩网:private mortgage insurance (PMI), pro🍰tects your mortgage lender in case you default on your mort🎐gage payments.

Homeowners Insurance vs. Mortgage Insurance

Though homeowners insurance and mortgage insurance sound similar, the two have distinct differences.

What Is Homeowners Insurance?

Homeowners insurance is a form of 澳洲幸运5官方开奖结果体彩网:property insurance designed to protect your home and its contents from damage caused by unforeseen events. In addition,🔯 most homeowners in🧸surance shields you from lawsuits if someone gets hurt on your property. It also insures your home and property from damage- or loss-related expenses.

A homeowners insur🙈ance policy may include coverage for your:

• Home’s structure
• Personal belongings
• Liability in lawsuits for injuries that you, your family members, and pets cause to other people
• Medical expenses if someone is hurt in your home
• Extra living expenses while your home is uninhabitable 

However, standard homeowners insurance policies come with limits, 澳洲幸运5官方开奖结果体彩网:typically excluding damage caused by natural events like floods, mold, earth movements such as earthquakes and landslides, and sewer or drain backups or overflow.

What Is Mortgage Insurance?

Mortgage insurance, or private mortgage insurance (PMI), is♛ ver꧑y different. Mortgage insurance is designed to protect the lender or bank in case you fail to make your mortgage payments.

With PMI, the homeowner normally pays a percentage of their total mortgage cost each year. Then, if they are unable to make mortgage payments, the insurance company will pay the lender on their behalf. Adding PMI to your monthly bills can raise the cost of owning a house.

Key Differences

The key differences between these two types of insurance can be summarized as follows.

Do I Need Homeowners Insuran🐷ce or Mortgage Insurance?💧

Which type of insurance you need depends on the type of mortgage loan, the size of your down payment, and how close yo🥃u are to paying off your mortgage.

Do I Need Homeowners Insurance?

Most homeowners have some kind of homeowners insurance since mortgage lenders often require this insurance to approve a mortgage. Lenders want to be protected in case your home is irreparably damaged or destroyed. The 澳洲幸运5官方开奖结果体彩网:mortgagee clause acc🍎omplishe🌼s this by requiring the insurance company to pay the lender.

However, many people maintain their homeowners ✤insurance for its benefits long after their mortgage loan has been paid off.

Homeowners insurance can make good financial sense because of the high replacement cost of homes and costly lawsuits. Monthly premiums can be much less than you would ever have to pay to rebuild your home or replace all your possessions in the event of a covered disaster or if you’re sued because a visitor got hurt.

Do I Need Mortgage Insurance?

Depending on the lender, borrowers are typically required to take out mortgage insurance when they supply a 澳洲幸运5官方开奖结果体彩网:down payment of less than 20% of the home’s purchase price. Private mortgage insurance (PMI) applies if you’re taking out a conventional loan or refinancing your home and the equity is less than 20% of its value. For 澳洲幸运5官方开奖结果体彩网:Federal Housing Adminis♒tration (FHA) mortgage loans, a 澳洲幸运5官方开奖结果体彩网:mortgage insurance premium (MIP)—the equivalent of PMI—is always required. 

Lenders require PMI because they reဣgard mortgages backed by less than a 20% down payment as risky, and they want protection in case you can’t meet your payments. 

However, you can usually cancel your PMI once you’ve paid off enough of the loan that it reaches 80% of your home’s original value. This valuation is defined by its contract sales price or 澳洲幸运5官方开奖结果体彩网:appraised value at purchase (whichever is lower). You must have a history of on-time payments and be up to date with your payments when requesting cancellation.

Loans backed by the FHA have their own rules. Depending on your 澳洲幸运5官方开奖结果体彩网:loan-to-value (LTV) ratio when you took out your FHA loan, your loan terms may require you to maintain your MIP for 11 years or the length of your mortgage.

Frequently Asked Questions (FAQs)

The Bottom Line

As you work through the mortgage process, you'll likely encounter both homeowners insurance and mortgage insurance, which are different from each other. Homeowners insurance protects your home, its contents, and you in case of lawsuits. Mortgage insurance, also called PMI, protects your lender (the bank, for instance) in the event that you can’t meet your mortgage payments.

Homeowners insurance can make good financial sense since it protects you fro൲m unexpected costs. You will be required to purchase PMI—on top of your mortgage—if your down payment is less than 20% or if you take out an FHA-insured mortgage.