Few people can afford to buy a house outright without taking a mortgage from a lender whether that is a banker or a speciality mortgage provider. Regardless of who holds your mortgage one thing you need to take into account is your home insurance. A mortgage will affect your insurance, whether it’s a new mortgage or you’re refinancing.
Lenders require home insurance
The holder of your mortgage will require you to obtain an insurance policy that covers the value of your home. This is usually done during the purchasing process of your home so you will have inspections and sale documents completed.
If you’re refinancing you will be required to ensure that your policy is updated or a new policy obtained to reflect the current value of your home as well as any other changes or modifications that may have been made. Only once a new assessment of your home is complete and a new insurance policy in place will a lender agree to a refinancing deal.
These requirements are in place because any lender must protect themselves against losses due to damage to the property the value of which is the security for their loan. They have to ensure that their information is included in the ‘mortgagee clause’ of your home insurance policy – either alongside or replacing that of your original mortgage lender – so that they are entitled to be paid in the event of any claim you make against your policy.
Furthermore, the lender may have requirements as to the type and extent of coverage you must place on your home. Most require a full comprehensive policy in order to ensure they’ll get their loan back in the event the home is destroyed or significantly damaged.
Keep an eye on your insurance coverage
Most homeowners intend to stay in their homes for a while. While your mortgage lender might not require you to update your insurance it’s a good idea to stay on top of it to ensure you your home and your belongings are adequately protected.
If you make any renovations or upgrades be sure to contact your broker or insurance company before you begin. The purchase of expensive property such as artwork, new appliances or a racing bike are also things you should bring up.
If you are refinancing, time may have changed the value of the property or your insurance coverage. A lender will still require comprehensive coverage to protect their loan. You may be required to get a home appraisal.
Your broker understands what mortgage lenders require for home insurance and work with you to find the best policy for your needs and budget.