Homeowners Insurance vs. Mortgage Insurance: What’s the Difference?

Homeowners insurance protects your house — and your pocketbook — against damages. Mortgage insurance protects your mortgage lender.

Aly J. Yale
Written byAly J. Yale
Aly J. Yale
Aly J. Yale
  • National Association of Real Estate Editors member

  • Bylines include Forbes, Bankrate, and CBS News

Aly is a reporter specializing in real estate, mortgages, and personal finance. You can find her work in Hearst newspapers and numerous financial publications.

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Danny Smith
Edited byDanny Smith
Photo of an Insurify author
Danny Smith
  • Licensed auto and home insurance agent

  • 4+ years in content creation and marketing

As Insurify’s home and pet insurance editor, Danny also specializes in auto insurance. His goal is to help consumers navigate the complex world of insurance buying.

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Updated November 29, 2023

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As a homeowner, you’ll need several types of insurance. Home insurance, which covers the costs of repairs for things like storm damage and fire, among other instances, is one of them. You may also be required to buy mortgage insurance, which protects your mortgage lender’s financial interests in your home.

Many times, you may need both types of policies simultaneously. Here’s what to know about these insurance options, when you might need them, and how to find affordable home insurance for your needs.

Quick Facts
  • Homeowners insurance covers the costs to repair your house or replace your belongings if they’re damaged or stolen.

  • Mortgage insurance protects your lender if you fail to repay the money you borrow.

  • Mortgage insurance is only required on certain mortgage programs and depends on your down payment.

Essential differences between homeowners insurance vs. mortgage insurance

Homeowners insurance and mortgage insurance are both types of policies you can have as a homeowner. You’ll also typically pay for them as part of your monthly mortgage payment.[1] That’s about where the similarities between these two insurance types end.

See below for a breakdown of how mortgage insurance and homeowners insurance differ.

Who benefits from a claim?

One big difference is who benefits from these types of insurance.

  • Homeowners insurance: With homeowners insurance, you — the homeowner — are the benefactor. If a storm damages your house, your insurer will help pay for the costs to repair it. If someone gets injured on your property, your insurer will also help with medical bills or legal representation.

  • Mortgage insurance: Mortgage insurance, on the other hand, benefits your lender. It’s there if you default on your loan — meaning you fail to make your payments. If this happens, the mortgage insurance policy will pay back a portion of that lost money to your lender.[2]

How much it costs

  • Homeowners insurance: The average annual home insurance premium is $1,784, according to Insurify data. The cost of homeowners insurance varies depending on your house, its features, where you live, and the amount of coverage you need, among other factors.

  • Mortgage insurance: The exact amount you’ll pay for mortgage insurance depends on your loan type, loan amount, and down payment. On conventional loans, you can expect to pay $30 to $70 per month for every $100,000 you borrow.[3]

With FHA loans (loans guaranteed by the Federal Housing Administration), mortgage insurance costs 1.75% of your loan amount at closing and then anywhere from 0.45% to 1.05% of your loan amount annually.[4]

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What is homeowners insurance?

Homeowners insurance covers the costs to repair or replace your home if it’s damaged, minus any deductible and up to the policy’s limits. The standard home insurance policy is called an HO-3, which provides basic coverage for your dwelling — the home you live in — and other structures on the property, like garages and fences.

What homeowners insurance covers

Home insurance, sometimes called hazard insurance, covers damage and physical losses caused by “covered perils,” which include fire, lightning, smoke, windstorm, hurricane, hail, explosion, aircraft and vehicle contact, vandalism, riot, civil commotion, and theft. This could include damage to the structure of your home or the belongings and systems within it.

Home insurance policies also come with liability coverage, which protects you if someone is hurt or has their personal property damaged at home. It can cover things like medical bills or legal costs in these scenarios.[1]

It also typically includes loss-of-use coverage, which pays your housing and living expenses if you’re unable to live in your home due to damage.[5]

These policies don’t cover everything, though. Homeowners insurance typically excludes damage done by any event not considered a “covered peril” (noted above) or damage done by floods or earthquakes. This usually requires a separate earthquake or flood insurance policy. It also may not cover damage from water seepage, wear and tear, mold, or termites.[1]

Flood Insurance: What Does It Cover?

Flood Insurance: What Does It Cover?

What is mortgage insurance?

Mortgage insurance — which can come in the form of mortgage insurance premiums (MIP) or private mortgage insurance (PMI) — is a type of protection for mortgage lenders. It pays the lender back if a borrower defaults on their loan.

Because mortgage insurance lessens the risk a lender takes on with a loan, it can allow them to approve borrowers with lower credit scores and smaller down payments.[2]

What mortgage insurance covers

Mortgage insurance covers the money you borrow from your lender. If you fail to pay it back as agreed upon, the insurance company will pay the lender back a portion of its losses.

When you need homeowners insurance

Homeowners insurance isn’t legally required, but if you have a mortgage on the home, you can bet your lender will require it before closing on the loan.[1]

If you don’t have a mortgage, getting a homeowners insurance policy is optional, though you’ll likely want it anyway. Without home insurance, you’d be on the hook to cover any repairs or damage to your property out of pocket. You’d also need to cover things like medical bills if someone’s hurt at your home or legal representation if you’re sued for said injury.

Home insurance also protects your investment. It ensures you can keep the home in good condition and its value high for the long term.

When you need private mortgage insurance

Mortgage insurance is required on FHA loans, so if you take out one of these mortgages, you’ll have both an up-front mortgage insurance premium (MIP) and an annual one divided among your 12 monthly payments each year.

You also may need mortgage insurance if you take out a conventional loan and make a down payment of less than 20%.[2]

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Homeowners vs. mortgage insurance FAQs

Insurance can be complicated, especially when you need several types of policies simultaneously. Refer to these commonly asked questions to better understand how homeowners and mortgage insurance work and when you might need one or both on your property.

  • Is homeowners insurance required?

    No. Homeowners insurance isn’t required by law, but mortgage lenders often require it before closing on a loan. If you have a mortgage loan on your house, you’ll likely need a homeowners insurance policy that covers up to the total replacement value of the property.[1]

  • Homeowners insurance vs. home warranty: What’s the difference?

    Home insurance and home warranties both protect your house — and pocketbook. The difference is home insurance covers damage to the structure of your house or the belongings inside it.

    A home warranty is meant to repair or replace certain systems or items within it — like your dishwasher or your plumbing system.[6]

  • How can you get rid of PMI?

    To get rid of private mortgage insurance (PMI), you’ll need at least 20% equity in your home — meaning you’ve paid down your mortgage balance to 80% of your home’s value or less. Once you hit that threshold, you can contact your mortgage servicer and request mortgage insurance cancellation.[7]

  • Is homeowners insurance cheaper without a mortgage?

    No. Having a mortgage doesn’t affect your home insurance costs. Your home insurance premium is based on the size of your house, its features, your location, and most importantly, how much it would cost to replace the home.

  • What is title insurance?

    Title insurance protects you in case someone else claims ownership of your home. This might happen if a former owner failed to pay taxes (and there’s a tax lien on the property) or if a contractor’s bill went unpaid, among other circumstances.[8]

Sources

  1. Consumer Financial Protection Bureau. "What is homeowner's insurance? Why is homeowner's insurance required?."
  2. Consumer Financial Protection Bureau. "What is mortgage insurance and how does it work?."
  3. My Home. "Breaking down PMI."
  4. HUD. "APPENDIX1.0–MORTGAGEINSURANCEPREMIUMS."
  5. Texas Department of Insurance. "Texas Homeowners Policies."
  6. Federal Trade Commission. "So what’s the deal with “home warranties”?."
  7. Consumer Financial Protection Bureau. "When can I remove private mortgage insurance (PMI) from my loan?."
  8. Consumer Financial Protection Bureau. "What is owner's title insurance?."
Aly J. Yale
Aly J. Yale

Aly J. Yale is a freelance writer and reporter covering real estate, mortgages, and personal finance. Her work has been published in Forbes, Business Insider, Money, CBS News, US News & World Report, and The Miami Herald. She has a bachelor’s degree in radio-TV-film and news-editorial journalism from the Bob Schieffer College of Communication at TCU and is a member of the National Association of Real Estate Editors.

Danny Smith
Edited byDanny Smith
Photo of an Insurify author
Danny Smith
  • Licensed auto and home insurance agent

  • 4+ years in content creation and marketing

As Insurify’s home and pet insurance editor, Danny also specializes in auto insurance. His goal is to help consumers navigate the complex world of insurance buying.

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