If you’re buying a home or refinancing your mortgage, you’ve likely come across two types of coverage and now need to know the differences between home insurance vs mortgage insurance. While they sound similar, they serve very different purposes—and understanding the distinction can help you avoid costly mistakes.
Let’s break down what each one covers, when it’s required, and how it affects you as a homeowner.
What Is Home Insurance?
Home insurance (also known as homeowners insurance) is a policy that protects you, the homeowner, against financial loss due to events like fire, theft, or natural disasters. It typically covers:
- Your dwelling (the structure of your home)
- Personal belongings inside the home
- Liability coverage in case someone is injured on your property
- Additional living expenses if you’re temporarily displaced
Home insurance is not legally required, but your lender will almost always require you to carry it as a condition of the mortgage. It protects their investment—and your peace of mind.
Want to reduce the cost of your home insurance without cutting coverage? Check out these practical ways to lower your home insurance premium.
What Is Mortgage Insurance?
Mortgage insurance, on the other hand, protects your lender—not you. If you default on your loan, the insurance reimburses the lender for their losses.
There are two primary types:
- PMI (Private Mortgage Insurance): Required for most conventional loans when your down payment is less than 20%.
- MIP (Mortgage Insurance Premium): Required for FHA loans regardless of down payment size.
While you may not see direct benefits from mortgage insurance, it does allow you to buy a home with less money down—making homeownership more accessible for many Americans.
According to USMI data, private mortgage insurance helped over 1 million borrowers become homeowners in a single year, many with down payments under 10%.
Key Differences Between Home Insurance and Mortgage Insurance
Who It Protects
- Home Insurance: Protects you and your property
- Mortgage Insurance: Protects the lender
When It’s Required
- Home Insurance: Required by lenders on almost all mortgages
- Mortgage Insurance: Required if you put down less than 20% or use an FHA loan
What It Covers
- Home Insurance: Property damage, theft, liability, and more
- Mortgage Insurance: Covers the lender’s losses if you default
Who Pays for It
- You pay the premium for both—but only home insurance gives you direct coverage benefits.
Can You Cancel Either Policy?
Yes—but under different conditions.
- Home insurance can be canceled at any time (though not recommended unless you’re replacing it).
- Mortgage insurance can usually be canceled once your loan-to-value ratio drops below 80%. For FHA loans, MIP may be required for the life of the loan unless you refinance into a conventional loan.
Do You Need Both?
In many cases, yes. If you have a mortgage, your lender will require home insurance. And if your down payment is low, you may also be on the hook for mortgage insurance—at least initially.
The good news? You can plan ahead. Consider saving more for your down payment or refinancing once you build equity to remove mortgage insurance sooner.
Final Thoughts
Understanding home insurance vs mortgage insurance is key to making informed decisions as a homeowner. While both may be required by your lender, only one protects you directly. Knowing how they work helps you budget effectively and plan for future savings.
If you’re looking to optimize your costs, don’t forget to revisit your policies regularly—both types of insurance can be reassessed as your financial situation evolves.