Mortgage insurance and home insurance may be similar at first glance, and some may even confuse one with the other. However, they exist in the best interest of two different parties – one being you, and the other being the lender. They function differently and have their own situations in which their coverage is applicable. Depending on your circumstances, you may only need one, or you may be required to have both.
What Is Mortgage Insurance Designed For?
Mortgage insurance is mandatory in certain situations. When you get a loan, the lender expects you to be reliable. Mortgage insurance protects them if you’re unable to maintain payments. A lender will assess your credit score, debt-to-income ratio, and check to see if you have a steady income. But the driving force behind whether you’ll need mortgage insurance lies in the percentage of the home’s total value that you pay in downpayment. If your downpayment is under 20% of the home’s cost, you’ll need mortgage insurance.
What Is Home Insurance Designed For?
Home insurance prevents you from suffering steep financial losses when your property and possessions get damaged from events outside of your control. It also offers liability protection for when someone gets injured on your property.
Your policy covers damage due to fire, vandalism, tornadoes, falling objects, and explosions. Coverage can either be based on replacement cost or actual cash value.
Home insurance won’t cover damage resulting from floods or earthquakes (coverage for these events require separate insurance).
How Do Mortgage Insurance Payments Work?
You’ll pay premiums, which are then placed into an escrow account. The amounts vary, ranging from 0.58% to 1.86% of the loan’s original amount. Premiums can either be monthly or a one-time lump sum payment during closing. It is important to note that each $100,000 borrowed could result in a $70 monthly increase.
Premiums are temporary because once you get to a certain point, you won’t need mortgage insurance at all. This could be from being halfway through the amortization phase, reaching automatic termination after the principal balance reaches 78% of the original home value, or after you request cancellation once your loan balance goes under 80%. However, if you got an FHA loan, you’ll need mortgage insurance for as long as you make mortgage payments.
How Do Home Insurance Payments Work?
Home insurance premiums are monthly and are typically $1,312 per year.
It’s a good idea to retain your home insurance for as long as possible. You’ll also need to renew this in order to maintain coverage. If you’re without homeowners insurance, you risk financial devastation in the event that disaster strikes.
Find the Policy That’s Right for You
Secure Insurance Group is here to present you with an opportunity to stay protected. With our help, you can have peace of mind in knowing that no matter what happens, your finances will be safe. We strive to give you the best professional guidance. Call us today at (417) 883-9300, or at our toll-free line at 1-877-871-7328.