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Homeowners' insurance: The mortgage connection
A home owners' insurance is the cover for the house against
natural calamities as well as liability. This covers the house
and its contents but also other personal possessions which the
house secures. The natural calamities include fires and winds. It
covers thefts and vandalism as well. It is also called hazard
insurance (http://www.mortgagefit.com/hazard-insurance.html)
It is not mandatory, like in the case of automobile insurance
to have a homeowners' insurance. But when one mortgages, the deed
of trust or mortgage requires the collateral to be insured. This
is because in the event of a default, the lender must not suffer.
If in the time span the house gets damaged due to a wind or
accident, the value on sale will decrease and thus the lender
will not be able to get back the debt balance.
Why does the lender insist on a homeowner's insurance?
Firstly, the lenders' name or the mortgage company appears on
the certificate of the insurance policy. The lender is
categorized as a 'loss payee' or a mortgagee. This ensures that
the lender is entitled to the insurance amount if the borrower
defaults.
Secondly, the insurance premiums are paid little by little
along with the monthly obligations or it is deposited in with
impound or escrow account. In both cases the lender can earn the
interest which is earned out of this amount. Moreover an escrow
requires an amount much more than a single premium to fund the
account.
The manner of payment of the insurance premiums differs from
lender to lender. Some require that the insurance premiums be
paid off in the first year after closing; while others will
spread the same throughout the loan term.
What you should keep in mind before taking a homeowners'
insurance?
You should shop for an insurance agent extensively .You must
go in for an insurance company which will make an honest
evaluation of your home value.
This insurance is not only for a liability security it is
important to the borrower as well especially if you aim for a
refinance or a remortgage. The collateral remains the same .Thus
you can still avail of a loan amount equal to the earlier
mortgage amount if not more (due to appreciation).
For a detailed study of mortgage and such other terms you can
log onto: http://www.mortgagefit.com
 MORE RESOURCES updated Thu. February / 09 / 2012
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New HARP Could Help Up to 6.7 MillionNASDAQOther changes to the program were designed to make it easier for homeowners with private mortgage insurance (PMI) to refinance or to obtain a HARP mortgage refinance with a lender other than their current mortgage servicer. In addition, new limits were ...and more » |
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