Mortgage insurance and homeowners insurance are two completely different forms of financial protection designed to protect two different things. Homeowners insurance covers your home, personal property, and legal expenses if your home is damaged, burglarized, or you’re held liable for an accident. Private mortgage insurance (PMI) is designed to protect your mortgage lender in the event that you fail to make your mortgage payments.
Homeowners insurance vs. mortgage insurance: What’s the difference?
Homeowners insurance | Mortgage insurance | |
|---|---|---|
Who it protects ... | The homeowner | The mortgage lender |
Who makes the payments? | The homeowner | The homeowner |
What it covers ... | Covers your home, personal property, and liability if your home is damaged, burglarized, or you’re held liable for an injury or property damage | Covers your lender in the event that you fail to make good on your loan payments |
What it costs ... | $1,249 per year on average | Typically 0.2% to over 2% of your original mortgage amount |
When it's required ... | Not required by law, but most lenders require it if you take out a mortgage | Required if you take out a loan and your down payment is less that 20% of the purchase price |
Included in mortgage payments? | Only if you pay your premiums through an escrow account | Yes |
Another important difference between the two is that you don’t have a say in who your mortgage insurance provider will be — that’s up to your lender. With homeowners insurance, the borrower shops around and buys the policy.
