YOU ASK:

Mortgage insurance vs. homeowners insurance?

WE ANSWER:

These are actually two different types of coverages so there's really no area where they should be compared.

Coverage

For one, mortgage insurance will protect the interests of the mortgage company. This is one way that the mortgage company can protect their "investment", that is, the money they lent to you. Mortgage insurance is required if you want to buy a house through a mortgage. The insurance will pay in case the borrower is unable to pay off their loan.

Well, a homeowners insurance is also required by the mortgage company. But this kind of insurance will primarily cover any damage or loss caused by a covered event. When the house or its contents are damaged or lost, the insurance will pay to cover these losses. If your homeowners insurance also has liability coverage, it will also cover against lawsuits due to injuries suffered while a visitor is in your home.

Recipient

The mortgage company receives the proceeds of the mortgage insurance. Meanwhile, the homeowners insurance is paid to the homeowner.

Who Pays

For someone who has a mortgage, he is expected to pay the premiums of both the mortgage insurance and the homeowners insurance.

Duration of the Policy

The mortgage insurance is set to cover the period where the loan is in existence, or at the least, if the borrower is able to gain at least 20% equity. The mortgage insurance company will require that you maintain your homeowners insurance for the life of the loan. But homeowners insurance is usually renewable on a yearly basis.

Benefits of the Coverage

Although the borrower will not receive the proceeds of the mortgage insurance, he can still benefit from getting this coverage. Mortgage insurance allows you to buy the home for a low down payment. Even if you can provide only as little as 5% in down payment, you can already buy and occupy the house.

As for homeowners insurance, the benefit is that your house and its contents are protected in case something happens to these.

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