hazard insurance vs mortgage insurance
Hazard Insurance Vs. Mortgage Insurance
While obtaining a hazard insurance is mandatory for availing a mortgage loan, a lender will draw insurance on the mortgage to protect his money. Apart from this point of distinction, this Buzzle article further does a hazard vs. mortgage insurance analysis to make their comparison clearer to you.
Hazard Insurance | Mortgage Insurance |
Cost | |
It may cost anywhere between .3 to 1% of the total loan amount on a yearly basis. | The yearly cost is .19 to 1% of the total loan amount. |
Impact on Credit Score | |
Nonpayment of your hazard insurance premiums will not affect your credit score. | Nonpayment of mortgage payment and insurance cost will affect your credit score badly, as it will lead to foreclosure of your home. |
Protection | |
It protects the interest of the lender as well as the homeowner. | It only protects the interest of the lender, not the homeowner. |
Safeguards Interest | |
It safeguards the interest of the borrower or owner against physical damage to property. | It safeguards the interest of the lender against defaulting borrowers. |
Selection of Insurance Company | |
Hazard insurance company is selected by the homeowner or borrower. | The lender selects the insurance company in case of mortgage insurance. |
Cost-dependent Factors | |
• Market value or replacement value insurance • Deductible • Value of house | • New or old property • Credit score • Value of house • Down payment • Value of loan amount |
Premium Duration | |
Hazard insurance will have to be maintained throughout the term of the loan. | The lender can eliminate the need for mortgage insurance once he has made a substantial down payment, i.e., about 80% of the total value of house. |
Premium Payment | |
Insurance premium is paid by the homeowner. | Insurance premium is paid by the borrower. Many times, the lender pays the premium, which is then added to the monthly mortgage payment of the borrower. |
Policy Cancellation | |
It is highly advisable that you maintain this insurance even after your mortgage payment is through, as it will protect your house against hazards. | According to information sourced from bankrate.com, owing to the law ruled by the Homeowner's Protection Act of 1998, the lender will have to automatically terminate your mortgage insurance when the loan balance is bound to reach 78% of your home's initial value based on the original amortization schedule. |
Advantageous For | |
It comes with a dual benefit as it is advantageous to the lender as well as the homeowner, since the risk is mitigated for both. | Mortgage insurance only works for the advantage of the lender, as the insurance allows him to take the risk. |