How does a homeowners insurance policy affect my mortgage?

UPDATED: Jan 2, 2014

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Asked January 2, 2014

1 Answer

Failure to have homeowners insurance is a serious offense in the eyes of your mortgage lender. For the lender, protecting your property is the same as protecting their investment, and they will usually make having home insurance a condition of the loan. The fact is, lenders have a lot on the line when they invest in your home, and having homeowners insurance takes the pressure off you if the unthinkable occurs.

Without home insurance, you are responsible for the costs if the home is destroyed by a wildfire. Not only would you have to rebuild the home or purchase another one, you would still owe the lender the remaining balance on the original mortgage. In a few minutes time, lack of insurance could wipe out your family savings or cause total financial ruin.

Some lenders require you to have mortgage insurance instead of home insurance. This type of coverage insures the value of the home and other structures, and pays directly to the lender in the event of a claim. While mortgage insurance does not pay anything to the homeowner, it does eliminate the remaining balance of the mortgage, allowing you to move on without a high-cost cloud hanging over your head. Mortgage insurance is commonly included in your regular mortgage payments, while homeowners insurance must be purchased by the homeowners.

If you do not have homeowners insurance and your mortgage company finds out, they have the right to demand full loan payment immediately. Since you have defaulted on part of your contractual obligations, the lenders is entitled to request full payment, including interest charges in a reasonable period of time, usually 30 to 90 days. Unless you are prepared to pay your mortgage off immediately, having insurance is a requirement you cannot avoid.

Answered January 2, 2014 by Anonymous

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