What’s the Difference Between PMI and Homeowners Insurance

Private mortgage insurance or PMI is insurance for the mortgage lender in case the homeowner or mortgagor is not able to repay the loan. PMI allows the lender to recover its losses after a foreclosure and sale of the reposed home.

There are two types of PMI, lender paid and borrower paid. The common version, borrower paid, is paid by the borrower either up front, quarterly, or monthly. PMI is no longer required once the loan balance is 80% of the property’s value.

Lender paid PMI is paid through the interest rate charged to the homeowner. The lender charges a higher rate and uses the additional proceeds to purchase the mortgage insurance policy.

Another type of insurance that is needed for a home is homeowner's insurance, HOI, or hazard insurance. This type of insurance protects the lender and potentially the home owner in the event of a catastrophe.

For example, if a home is destroyed in a fire:

• The HOI will pay the lender the amount owed on the mortgage.
• The HOI with personal property insurance will pay for the personal possessions of the home owner destroyed in the fire.
• The HOI with liability insurance will protect the homeowner from third-party claims related to the fire

Homeowner's insurance commonly only covers the lender’s responsibility and it's a good idea to have additional coverage for personal property and for liability. Check your homeowner’s policy today to verify or call 678.648.5626 for a recommendation on a professional insurance agent today.

Source: Private Mortgage Insurance

Wikipedia

December 1, 2008