Hello Friends, I hope you all are great. Now today I am here to share with you difference between home insurance and mortgage insurance.
Let me Introduce What Is Home Insurance?
Homeowner’s insurance (hazard insurance) offers the coverage to protect your house and belongings from damage, vandalism, accidents, theft, fires or natural calamity.
Now what is Mortgage Insurance?
Mortgage insurance is the amount you need to pay each month in addition to the mortgage if the down payment is less than 20% of the total value of your house. The lender charges it from such risky borrowers/ owners till the owner achieves 20% equity in the house.
Here are the few differences between home insurance and mortgage insurance
- Importance
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Home insurance benefits both the owner and the lender. The lender, usually the bank, needs the owner to acquire it since the loan is backed by the house. This insurance will allow restoring the house in its original fine condition in case of any damage and thus protects value of lender’s collateral.
Mortgage Insurance secures the lender from losing his loan amount by requiring the owner to pay mortgage insurance every month. It allows the owner to purchase the house at less than 20% down payment.
- Time Frame
The house owner retains the house insurance as long as he possesses the house and wants it to be covered.
The mortgage insurance is not necessary to be paid till the entire loan is repaid. It can take long time as most of the mortgage payments cover the interest, not the principle. So the owner gathers very little equity in the beginning. Larger is the down payment, faster the equity reaches 20% and the owner can get rid of the extra insurance. It gets cancelled once the equity i.e. value of the house in comparison with the mortgage amount, is 20 percent. In few cases, the lender wants to keep it for certain fixed period, say 3 to 5 years. Then the owner can make the appraisal again. Here the mortgage insurance gets eliminated once the estimated value rises to such a new high value that the owner needs to pay less than 80 percent of the value.
- Characteristics
House insurance costs 0.3 to 1 % of the loan yearly. It changes according to the price of the house, the size of deductible and market value (original cost) or replacement value (today’s market value) insurance, whatever the owner chooses.
The mortgage insurance cost lies between 0.19 and 1 % of the loan. It changes according to the credit score, loan amount, and actual value of home and also depends upon the status of the house i.e. first or second home.
- Necessity
It is mandatory to submit papers that verifies sufficient home insurance amount while purchasing the house. It is mentioned in the policy declaration page along with the details of coverage amount and type of coverage.
Mortgage insurance is not always necessary to acquire. The lender may ask to seek it only if the down payment is less than 20 % of the loan.
How to Obtain?
The owner obtains home insurance by reviewing various quotes and offers from different insurance companies. Usually the house owner has to get the mortgages insurance. But sometimes the lender buys mortgage insurance for the house. In such cases, the owner gets charged with higher loan interest rate.
Houston National Insurance is an leading insurance agency where you can get both home and mortgage insurance easily and the price that you can afford. So you can try us if you are looking for such insurance coverage in Houston, Texas.
Thanks and Have a nice day..!!!!!!!!!!!!!!!