Homeowners Insurance Vs. Mortgage Insurance: What's the Difference?

Most folks purchasing homes here in the Greensboro/High Point areas don’t just buy them outright but, rather, finance at least a portion through a bank or other loan provider. Because of this, lenders require a means of protecting their risk exposure in the event that something happens, such as a default on payments due to the death or incapacitating illness of the mortgagee. The lender is also exposed to risk due to various perils that could affect the home, such as fire, storm damage or other types of incidents that would lower or even totally wipe out the value of the home against which a mortgage loan has been obtained. There are a couple of risk-mitigating options available.

Homeowners Insurance Vs. Mortgage Insurance

While many may wrongly assume that homeowners insurance and mortgage insurance are the same or similar, the fact is, mortgage insurance is designed to protect the lender and does nothing to protect you, the homeowner. Homeowners insurance, on the other hand, provides protection for both the lender and the homeowner. Here are the specifics:

Mortgage insurance is typically required by lenders if, when purchasing your home, you put less than 20% in as an initial down payment. This type of insurance protection covers the dollar amount remaining on a home mortgage in the event of a default. If, for example, you’re unable to work as a result of an illness or injury and default on your home loan payments, the remaining balance would be paid to the lender. Premium payments for mortgage insurance are made by the homeowner and are typically rolled into the monthly mortgage payments. A major benefit of this type of coverage is that it allows prospective homeowners the ability to buy a home with a lower initial down payment.

Homeowners Insurance

As the name implies, homeowners insurance is designed for protecting the homeowner against the risk of loss from a long list of potential perils. These include everything from storm damage and fire to burglary, vandalism, theft, civil disturbances, explosions, damage from vehicles, airplanes and more. It covers both your home structure and the possessions found within. It may even cover personal possessions stolen or damaged while not actually in the home.

Homeowners coverage has many options, and a policy can be designed to fit your specific needs. It also protects your lender’s financial interests in situations involving structural damage or loss.