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

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

Reviewed by

Ian Bloom, CFP®, RLP®

UpdatedOctober 25, 2022|1 min read

Expert reviewed

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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

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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?

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.

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?

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

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?

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.

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?

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.

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.