Homeowners Insurance vs Private Mortgage Insurance

Homeowners insurance covers your property itself. Each insurance plan is different, but it typically protects damage to the structure of your home and your personal belongings, and liability in the case of a lawsuit.

Private Mortgage Insurance (PMI) protects your lender if you stop making payments on your loan. It typically comes in the form of a monthly payment that is added to your existing mortgage payment, and is usually required for those who make a down payment of less than 20%.

Do I Need Both?

It depends. Homeowners insurance is not required by law for owning a house. However, your lender will likely require it in order to take out a mortgage with them. Not only does it benefit you by protecting your home, possessions, and legal well-being, it also benefits your lender – since you’re using their money to finance your home, it’s an investment for them, too. All in all, it’s wise to have.

When it comes to PMI, you’ll only need it if you pay less than 20% down. Because a smaller down payment indicates a higher risk, most lenders will require PMI as a security blanket so they don’t suffer loss if you don’t make your loan payments. You might be thinking, “okay, so does it benefit me?” Yes! Paying a little extra each month for PMI allows you to have a smaller down payment. Essentially, the money you’re saving upfront will add up each month in your PMI. Like homeowners insurance, it can be mutually beneficial.

Homeowners Insurance vs PMI: Fast Facts

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*This article is presented to you by Waterstone Mortgage. Please click here to read the full article.