Mortgage Paid Premium Insurance

Does Homeowner’s Insurance Pay Mortgage Premiums?

Your homeowner’s insurance covers you in the event of a fire, a theft or another covered event as specified in your policy.

However, it will not protect you if you become unable to make mortgage payments due to illness or job loss. This is where mortgage protection insurance, or private mortgage insurance (PMI), comes in.

How it works

Note that you as the borrower pay for the PMI, but the lender is the beneficiary. It covers the lender, not you, if you become unable to repay the loan and the lender cannot recover costs after foreclosing the loan and selling the home.

PMI is either included in your monthly mortgage payment or billed separately. Costs vary depending on the down payment and the size of the loan, but you can expect PMI to be about one-half to 1 percent of your loan cost.

When it’s needed

Lenders typically require buyers to have mortgage insurance if the down payment is less than 20 percent of the appraised value or sale price. Once the loan principal reaches 80 percent, meaning you have 20 percent equity in your home, oftentimes you may cancel the PMI. Ask your mortgage provider how PMI works if you intend to put down less than 20 percent on a home.

Note that PMI is sometimes waived through certain government loans or programs. It’s worth investigating your options before committing to mortgage protection insurance.