What is Mortgage Hazard Insurance?

When you take out a mortgage to buy a home, the lender will require you to purchase mortgage hazard insurance, also known as home hazard insurance or homeowners insurance. This insurance protects your lender and your investment in case of damage or loss from hazards such as fire, theft, and natural disasters.

Why Do I Need Mortgage Hazard Insurance?

Most lenders require mortgage hazard insurance as a condition of granting a mortgage. The reason is simple: they want to protect their investment in case the home is damaged or destroyed. Without insurance, the lender would be at risk of losing the money they lent you, and you would be at risk of losing your home.

But even if your lender did not require mortgage hazard insurance, it’s still a good idea to have it. Your home is likely the most valuable asset you own, and it’s prudent to protect it from unforeseen events that could damage or destroy it.

What Does Mortgage Hazard Insurance Cover?

Mortgage hazard insurance typically covers damage or loss from hazards such as:

• Fire and smoke
• Lightning
• Wind and hail
• Explosions
• Theft and vandalism
• Water damage from burst pipes or plumbing issues
• Natural disasters like hurricanes, tornadoes, and earthquakes (depending on your policy)

However, it’s important to read your policy carefully to make sure you understand exactly what is covered and what is not. Some policies may exclude certain hazards or have limits on coverage amounts.

How Much Does Mortgage Hazard Insurance Cost?

The cost of mortgage hazard insurance can vary depending on several factors, including:

• The value of your home
• The type of construction (e.g. wood frame vs. brick)
• Your location (e.g. areas prone to natural disasters may have higher premiums)
• The deductible you choose

On average, homeowners can expect to pay between $700 and $1,200 per year for mortgage hazard insurance. But again, the cost can vary widely depending on these and other factors, so it’s important to shop around for the best rate.

FAQ

What’s the difference between mortgage hazard insurance and mortgage insurance?

Mortgage hazard insurance (also known as homeowners insurance) protects your home and belongings from hazards like fire, theft, and natural disasters. Mortgage insurance, on the other hand, protects the lender in case you default on your mortgage. Most lenders require mortgage insurance if you put down less than 20% of the purchase price when you buy the home.

Can I choose my own insurance company?

Most lenders will require you to purchase mortgage hazard insurance from a company they approve of. This is to ensure that the policy meets their specific requirements. However, you can usually choose your own insurance company if they are on the lender’s approved list.

What if I can’t afford mortgage hazard insurance?

If you are unable to afford mortgage hazard insurance, talk to your lender about your options. They may be able to offer you a different type of loan or suggest other resources that can help you afford the insurance.

Do I still need mortgage hazard insurance if I own my home outright?

If you own your home outright (i.e. you have no mortgage), mortgage hazard insurance is not required. However, it is still a good idea to have homeowners insurance in case of unforeseen events that could cause damage or loss to your home.

What happens if I don’t have mortgage hazard insurance?

If you do not have mortgage hazard insurance and your home is damaged or destroyed by a hazard, you will be responsible for paying for the repairs or replacement out of pocket. If you cannot afford to do so, you risk losing your home and damaging your credit history.

Conclusion

Mortgage hazard insurance is an essential protection for homeowners and lenders alike. It provides peace of mind that your investment is protected from unforeseen events that could cause damage or loss to your home. Be sure to shop around for the best rate and read your policy carefully to understand exactly what is covered.