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?
Who it protects ...
The mortgage lender
Who makes the payments?
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
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.