What’s the Difference Between Homeowners Insurance and Mortgage Insurance?

Homeowners Insurance

Homeowners insurance is not the same as mortgage insurance regardless of what your mortgage lender or insurance agent might tell you. The truth of the matter is that every homeowner needs his or her own form of homeowners insurance because different plans are available to suit different needs.

Some home-insurance plans include coverage for major catastrophes while others may offer basic protection in case anything goes wrong while you’re at home, such as a plumbing emergency.

Some even offer coverage for theft or a broken dishwasher, but again, everyone’s needs are different so make sure you know what your home insurance plan covers before deciding if it will do for you.

One thing that all home-insurance policies have in common though is that they will often exclude certain things from their coverage, like flooding and earthquakes, which is where flood insurance and earthquake insurance come in when it comes to disasters of these kinds.

What Is Mortgage Insurance?

Mortgage insurance is a type of insurance that protects lenders against losses. It is typically required by lenders to obtain a mortgage loan.

Mortgage insurance provides coverage for the lender in the event that the borrower defaults on the loan. Mortgage insurance can also help to protect against interest rate risk, which is when the interest rate changes and borrowers have difficulty making their monthly payments.

Mortgage insurance is typically sold by private companies and requires an upfront fee or premium to be paid by borrowers. It can also be sold as a rider with a mortgage loan or as part of a package deal with other types of lending products such as home equity loans, HELOCs, and lines of credit.

When Is Mortgage Insurance Required?

Mortgage insurance is required in most cases when you are taking out a mortgage. There are two types of mortgage insurance, which are mortgage life insurance and mortgage disability insurance. Mortgage life insurance is required when you want to borrow more than 80% of the value of your home.

Mortgage disability insurance is required when you want to borrow less than 80% of the value of your home and you have a pre-existing condition that prevents you from working for at least 12 months.

Mortgage life insurance and disability insurance are designed to provide protection in the event of a disability or death. Depending on how much you are borrowing, your lender may require you to purchase mortgage life insurance or mortgage disability insurance.

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