What is the difference between hazard insurance and mortgage insurance

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The information on this site does not modify any insurance policy terms in any way. If you are purchasing a home, you may be reviewing insurance options such as mortgage insurance and home insurance. These coverage types, while both important, are used to cover different situations.

Mortgage insurance is used to pay the lender if you default on your mortgage, and homeowners insurance helps repair your property if your home, detached structures and personal belongings are damaged or destroyed by a covered claim.

The key difference between mortgage insurance vs. Homeowners insurance mainly protects the borrower, while mortgage insurance protects the lender and its investment in your home. The PMI premiums will be canceled after a certain portion of the mortgage is repaid.

If a covered claim damages your house, your property insurer will help cover the repairs, minus your deductible. When you take out a loan to buy or refinance a home, a bank or lender takes a risk that you will honor the terms of your loan and make monthly mortgage payments to your lender.

Loan criteria mortgage lenders typically follow for low-risk borrowers includes home buyers with a:. A lender could see this as a concern. A borrower who cannot contribute a high enough down payment toward the purchase of their property may not be able to afford the higher monthly mortgage payments for the long haul in the eyes of lenders.

That is where PMI comes in. Unlike mortgage insurance, hazard insurance benefits you as well as your lender: if your lender only requires a minimal level of hazard insurance, you might consider taking out more to protect your own investment in your home, the Nolo legal website states. The annual cost of mortgage insurance is usually between. You can pay it up front, or incorporate it into the mortgage payment. It will be affected by your credit score, the size of your loan, whether the property is a first or second home and how the size of the loan compares to the value of your home.

A year of hazard insurance will cost between. It isn't affected by your credit score but will be influenced by the value of your house, the size of your deductible, and whether you choose the market value or replacement value insurance.

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