Mortgage Insurance vs. Homeowners Insurance
Homeowners insurance protects your home, belongings, and liability, while mortgage insurance is designed to protect your lender if you fail to repay your loan.
What is the difference between mortgage insurance and homeowners insurance?
Buying a home comes with plenty of moving parts, and insurance is often one of the most confusing. Two types you’ll likely hear about are mortgage insurance—often called private mortgage insurance (PMI)—and homeowners insurance. While they sound similar, they serve very different purposes.
PMI may be required by your lender depending on your down payment, while homeowners insurance protects your property and belongings. Knowing the difference helps you understand who and what each type of insurance actually covers.
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What is mortgage insurance?
While homeowners insurance protects your property and assets, mortgage insurance is meant to protect the lender. Mortgage insurance is required if you don't make a down payment of at least 20% of the home's value when you purchase the property.
In the event you can't make mortgage payments and you default on your loan, it safeguards your mortgage lender from the financial loss of the home loan. In no way does it benefit or protect the homeowner or their assets — though the homeowner is responsible for paying for PMI, it only protects the lender if monthly mortgage payments are missed.
What is title insurance?
When you buy a home, a title company must ensure the title is "clean" — that is, checking to see there are no outstanding claims or liens on the property. Title insurance protects owners and lenders against financial loss arising from defects in title documentation, unsettled lawsuits or liens, and issues of fraud or forgery in the home's ownership records.
While most insurance types protect against hazards that may occur in the future, title insurance safeguards against potential discrepancies during the title transfer process that may have occurred in the past. One of the most common title insurance claims is for missed back taxes.
Compare home insurance quotes to get the best coverage and rate.
Key differences
Homeowners insurance covers the structure of the home, along with personal property and provides liability insurance. It protects your home if it sustains damage as a result of a covered loss, and helps pay to repair the damage or replace the home if it’s a total loss. Read a more in-depth analysis of what homeowners insurance covers.
In no situation does mortgage insurance cover anything to do with your house, your personal property, or liability — unless you cease paying your mortgage.
What is mortgage disability insurance?
With typical long-term disability insurance, you're paid out a percentage of your pre-disability income to help cover expenses while you're unable to work. But with mortgage disability insurance, only your mortgage payment (principal and interest) is paid — this is the specific amount of your payment versus a percentage of your income. This coverage is especially valuable for folks working in high-risk industries, or those who don't already have disability insurance. Mortgage disability insurance is often purchased through your mortgage company, but you can also get it as an independent policy from an insurance agent.Â
Mortgage disability insurance can also ease stress because the insurer will pay the mortgage company directly so you won't have to deal with moving payments around while you're recovering. There are often riders you can add to the policy, such as home-related expense coverage or return of premium.
How Much Homeowners Insurance Do I Need?
Understand how much homeowners insurance you need with a breakdown of dwelling, personal property, liability coverage and tips on costs and endorsements.
Mortgage insurance: what to considerÂ
PMI adds to the cost of owning a home, even though it’s sometimes tax-deductible. On average, it runs about 0.5% to 1% of your total loan amount. For example, a $200,000 mortgage with a 1% PMI rate means paying an extra $2,000 per year—or about $166 a month. The catch? That money protects your lender, not your home.
Homeowners insurance, on the other hand, safeguards you and your property. Premiums typically range from $700 to $1,500 annually, depending on factors like your location, home value, credit score, and insurer. With smart planning, you may be able to avoid PMI altogether and instead put those dollars toward a solid home insurance policy that actually protects your investment.
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