Difference Between Mortgage & Homeowners Insurance

Mortgages and homeowners insurance have some very distinct differences. When you have a mortgage, property is pledged as collateral for a loan, and homeowners insurance provides protection for the dwelling or structure as well as the contents in the home.

Significance

When a mortgage is on a property, the lender can foreclosure if you stop making your monthly payments. Eventually, the home will go to a sheriff's auction and is sold to the highest bidder. You could be responsible for the remaining balance. The mortgage is the loan you owe.

Considerations

If you don't pay your homeowners insurance premiums, your insurance could be canceled. In order to protect their security interest in the property, the lender force places insurance designed to cover the dwelling structure and not your personal property.

Effects

Forced-placed insurance is very costly, and you are likely to see an increase in your mortgage payments. Once you reinstate your original policy, call the lender and let them know. They will remove the added insurance coverage, and your payments will return to their original amount.

Function

Homeowners insurance polices are usually designed to cover your personal property and other contents in the home. One method of coverage is taking the dwelling coverage and multiplying it by 50 to 70 percent. This provides you with a dollar figure for the coverage of your personal property.

Warning

The mortgage holder or lender will take action if the mortgage is not paid or if the homeowner's insurance premiums are not paid.

References

• What is a Mortgage?
• What Does Homeowners Insurance Cover?