Mortgage insurance vs. homeowners insurance: What’s the difference?

Homeowners insurance covers you and your home in the event of property damage or an accident, while mortgage insurance protects your lender if you fail to pay your mortgage.

Kara McGinley

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Kara McGinley

Kara McGinley

Senior Editor & Licensed Home Insurance Expert

Kara McGinley is a senior editor and licensed home insurance expert at Policygenius, where she writes about homeowners and renters insurance. As a journalist and as an insurance expert, her work and insights have been featured in Kiplinger, Lifehacker, MSN, WRAL.com, and elsewhere.

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Ian Bloom, CFP®, RLP®

Ian Bloom, CFP®, RLP®

Certified Financial Planner

Ian Bloom, CFP®, RLP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, he was a financial advisor at MetLife and MassMutual.

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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.

Key takeaways

  • Homeowners insurance protects the borrower (aka homeowner), whereas mortgage insurance protects the lender.

  • Homeowners insurance covers your home from expensive financial losses like fires and storms.

  • Mortgage insurance protects lenders in the event that you fail to make mortgage payments.

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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

Learn more about homeowners insurance

Learn more about mortgage insurance

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.

Homeowners insurance vs. mortgage insurance: Who does it protect?

Home

Homeowners insurance

Homeowners insurance is financial protection for the homeowner. It covers your property and liability in the event of a claim. The homeowner make these payments.

Policy

Mortgage insurance

Mortgage insurance protects a mortgage lender's financial investment in your home. It’s paid for by the homeowner, but it’s designed to cover the lender in the event you stop making payments on your mortgage.

Homeowners vs. mortgage insurance: What does it cover?

Home

Homeowners insurance

  • Dwelling coverage: Covers the structure of your home if it’s damaged or destroyed by a covered loss

  • Other structures coverage: Covers any structures that aren’t attached to your home, like a garage

  • Personal property coverage: Protects your personal belongings if they’re stolen or damaged both on or off your property

  • Loss-of-use coverage: Pays for you to live elsewhere while your home is being repaired due to a covered loss

  • Liability coverage: Pays for legal expenses and medical bills if you’re held liable for an injury or property damage

  • Medical payments coverage: Pays for your guests medical expenses if they’e hurt while in your home — regardless of who’s at fault

Policy

Mortgage insurance

The mortgage insurance premiums you make protect the lender in the event you stop paying off  your loan. Even if your house is in foreclosure, you have to keep paying your PMI. 

Homeowners insurance vs. mortgage insurance: What does it cost?

Home

Homeowners insurance

Home insurance costs $1,249 per year on average. You should have enough dwelling coverage to fully cover the costs of rebuilding your home if it is destroyed. The homeowner is responsible for paying homeowners insurance.

Policy

Mortgage insurance

Private mortgage insurance typically costs 0.2% to over 2% of the original mortgage amount. The premiums stay fixed for the duration of your policy period, meaning they won’t go up. Many lenders will allow you to cancel your PMI once you’ve paid off 22% of your loan, but you may be able to request early cancellation. The homeowner is responsible for paying mortgage insurance premiums, and the payments go straight to the mortgage lender. 

Homeowners insurance vs. mortgage insurance: When is it required?

Home

Homeowners insurance

Home insurance isn’t required by law, but a lender may require it if you want to take out a mortgage. Even if you don’t have a mortgage or already paid yours off, you should still get homeowners insurance. Going without it would leave you financially on the hook for any damage to your home.

Policy

Mortgage insurance

Mortgage lenders typically require private mortgage insurance if you take out a loan and your down payment on the house is less than 20% of the home’s price.

Author

Senior Editor & Licensed Home Insurance Expert

Kara McGinley

Senior Editor & Licensed Home Insurance Expert

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Kara McGinley is a senior editor and licensed home insurance expert at Policygenius, where she writes about homeowners and renters insurance. As a journalist and as an insurance expert, her work and insights have been featured in Kiplinger, Lifehacker, MSN, WRAL.com, and elsewhere.

Expert reviewer

Certified Financial Planner

Ian Bloom, CFP®, RLP®

Certified Financial Planner

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Ian Bloom, CFP®, RLP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, he was a financial advisor at MetLife and MassMutual.

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