- Homeowner's insurance protects homeowners from specific, covered perils. These perils usually include fire and theft, but not flooding and mold damage, although specifics can vary. The policy helps the homeowner make repairs if unexpected damage occurs to the structure. These insurance policies specify required deductible amounts that homeowners must pay before the insurer begins providing payment.
- Lenders do not create homeowner insurance policies themselves. Insurers not connected with the lenders offer these policies. In fact, many borrowers can find homeowners insurance through the insurance companies that provide their auto insurance, which can lead to lower rates and premiums. From this perspective, mortgage companies cannot directly change insurance deductibles at all. They are not the ones that create the policy, and even though they may pay for the policy through escrow accounts, they rarely have the authority to make changes to the policy themselves.
- Just because the lender cannot change the deductible directly does not mean that the lender cannot require you to make changes. Most lenders have deductible limits that they impose on borrowers based on the value of their home. Some mortgage companies set the maximum deductible at five percent of the total coverage amount for the house, up to $5,000. Many set the deductible at one percent and $1,000 instead. This allows the lender to indirectly manage risk even though they are not creating the policy.
- Mortgage insurance is a requirement for mortgages where borrowers do not have enough cash to make the full standard down payment. This insurance protects the lender from defaults and applies directly to the lender. Mortgage insurance is not associated with deductibles, and it is unlikely that mortgage insurance will be necessary after a refinance.
Homeowner's Insurance
Lender Involvement
Deductible Rules
Mortgage Insurance
SHARE
