A comparative analysis of home insurance and mortgage insurance: Make the right choice!

Home Insurance

Most of the people are unaware of the difference between home insurance and mortgage insurance. This article can help you provide an insight on the difference between home insurance and mortgage insurance. Well, homeowner’s insurance is essential to protect the house from damage and to protect the belongings. But mortgage insurance is a monthly payment added to the mortgage, if potential homebuyers put less than 20% down on the home. They’re both completely different and address two different requirements. Here you can analyze the difference by drawing a comparative analysis between home insurance and mortgage insurance.

What is mortgage insurance?

Mortgage insurance covers the amount of your mortgage if you default on your payment. If the mortgage holder fails to pay off the mortgage due to death or serious illness of the mortgage holder, then the mortgage insurance can pay off the remaining balance of your mortgage.

Therefore, the mortgage lenders have made it mandatory for all the homebuyers to carry mortgage insurance if the down payment is below 20%. You can apply for mortgage insurance from the Federal Housing Administration in the US. Previously, 45% of the home buyers were required to buy mortgage insurance. Now, the cost of insurance is actually included in your mortgage payment; as a result, you’re not required to pay any added premium.

Therefore, people with low savings can actually buy a home earlier by guaranteeing the full amount of the mortgage. So, the lenders can avoid additional risk if the homeowner defaults on payment in the future due to injury or death.

If a potential home buyer is planning to buy a home without mortgage insurance, then he needs to make larger down payment. In fact, in this tough economic situation, most of the people may not be able to afford it.

Therefore, if you carry mortgage insurance, you can actually buy a home with a minimum amount of down payment like 5%. Remember, mortgage insurance is beneficial particularly for the first time home buyers.

What is Home Insurance?

Home insurance in an insurance policy that compensates the replacement cost of the home, if it is damaged by fire or accident. It also covers the replacement cost of your belongings if it is damaged or stolen.

Here are some of the home insurance policies that you can consider:

Comprehensive Home Insurance: This insurance policy covers your home and its contents from all risks that are insurable. Well, there are certain exceptions like some natural disasters that are not insurable.

Basic Insurance: This policy is popularly known as “perils insurance” as it allows you to specify the types of hazards you want the insurance to cover. In fact, it is considered to be a cheaper option and provides a lower level of coverage. However, this type of coverage is popular for a cottage or other vacation property.

Broad Insurance: This policy is a combination of comprehensive as well as basic coverage. Well, the comprehensive coverage provides coverage on the building and basic coverage on your belongings.

Therefore, the home insurance is designed to protect the homeowner against theft and damage of the home. Unlike mortgage insurance, you need to pay a premium separately on home insurance.

If you’re aware of the basic difference between home insurance and mortgage insurance, then you can make the right choice and get the correct policy that you require for your home.

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