For many people, a house can be considered as the largest financial investment one could have. However, it could also be the most vulnerable as it is always subject to unforeseeable and uncontrollable situations such as natural disasters, vandalism, fire, and burglary. In order to soften the risk of losing your home’s value, a homeowner’s insurance policy is definitely a good way to go.
Homeowners who finance their home with a mortgage will likely purchase home insurance coverage in order to protect the property in case of emergency.
How Homeowner’s Insurance Affects Mortgage
Most lenders require homeowner’s insurance as a condition of mortgage. In majority of the cases, when you have a mortgage loan, the lender provides an option of including homeowner’s insurance with principal and interest loan payments. Usually, the lender will be holding the funds in an escrow account which accumulates the money during specific period of time. In return, the mortgage company pays the homeowner’s insurance once the account has reached a policy required level.
There are some cases that you can pay your own homeowner’s insurance separately from the mortgage payment. Take note that insurance costs will be have a tendency to increase (per month or per annum), but it would be beneficial as it allows you to divide your insurance costs into smaller and more manageable payment methods.
Mortgage Impacts Homeowner’s Insurance
Currently, lenders are needed to acquire mortgage loan insurance in a loan where the buyer’s equity in the home is less than 20 percent. However, lenders may also opt to pass the financial risk of a mortgage to taxpayers by just paying the loan insurance, even if the down payment is greater than 20 percent. The insurance is usually purchased and paid for by the lender as it helps cover the risk of mortgaging a more expensive property.
This article is more of a glimpse on the policies of a homeowner’s insurance. To know more and to get started with yours, contact us here at the Troy Dunn Insurance Group today!