Home Insurance Articles

Can You Tie Your Home Insurance Payments Into Your Mortgage

2010-01-11

Home ownership is both an exciting prospect and a huge responsibility. In owning a home, there is much more financial obligation than just a mortgage payment. New homeowners must also pay other fees, such as property taxes and homeowner's insurance. The latter is the policy that will cover damage and reconstruction costs for the homeowner in the event of a fire or some other destructive event. Depending on the lender and the laws governing real estate in a given region, homeowners may have the option of paying their home insurance payments (also known as property insurance or homeowners' insurance) from an escrow account managed by their mortgage holder.

While property insurance is required for all homeowners, a purchaser may select any insurance carrier to hold their policy. After an insurance company has been chosen, the lender will be contacted with the policy information so that they may pay on behalf of the mortgage holder. A homeowner may elect to purchase a policy with an insurance company that also holds their auto and/or life insurance policies in order to obtain a competitive "multi-policy"rate. However, borrowers who do not select their own insurance carrier will find themselves paying a higher rate for a "force placed policy,"which is a homeowner's insurance policy chosen by the mortgage holder in lieu of a private selection. This is not an ideal situation, as the policy usually costs more, but provides less property coverage than a policy chosen by the homeowner. This is to the long-term detriment of the buyer in the event of damage or destruction.

Although both mortgage and insurance may be paid from an escrow account, homeowner's insurance is different from private mortgage insurance (PMI). Homeowners' insurance is required for every purchaser by all mortgage brokers and organizations, regardless of the amount owed on the home. Payment for the policy will be owed to the insurance company even when the mortgage has been paid in full. Lenders require PMI, depending on the amount provided for down payment. It is usually only required until 20 percent of the purchase price has been received by the lender.

Different states have different requirements for escrow account payouts. If you are in the market for a new home, either as a first time homebuyer or a repeat purchaser, ask your loan officer about your mortgage holder's escrow account policies. While this may not be an option in your area, you may find that the lender sets up this arrangement automatically without any additional work on your part. While this leads to a higher mortgage payment, it takes a monthly payment out of your hands, leading to assimilated bill payment and long-term peace of mind.