Buying a home means recognizing that, no matter how safe you try to be, there are numerous hazards that might come along to damage the property. When they do, they could put you in a significant financial bind, and you want your home insurance to help you pick up the pieces.
What many homeowners don’t realize is that they might not be the only party that has an interest in their property. If you have financed your home, then your mortgage lender wants to keep the property as secure as you do, and as a result, they will often institute a requirement that you buy home insurance. Regardless, however, it’s a benefit that no property owner should be without.
Protecting Your Investment in Your Mortgage
By mortgaging your home, you rely on a bank to provide you with the loan to buy the property, and you are then responsible for repaying the loan to the bank. However, for as long as you have the mortgage, your bank has an investment in your home, and they want to keep it secure. As a result, they will usually require you to buy home insurance.
Consider a scenario where you take out a mortgage worth $350,000. That is a $350,000 debt that the bank has assumed on your behalf. Therefore, they expect you to repay that money to them, which is why they might foreclose on you if you stop paying your mortgage.
Still, consider what would happen if major property damage occurs in your home. Would you struggle to repay your mortgage? Would the repairs set you back a pretty penny? If so, that would lead to financial struggles that could put your ability to both repay your mortgage and live in the property in limbo. This makes the lender’s ability to recoup their investment a lot more difficult.
However, home insurance is there to keep all parties in the deal on a stable financial footing. It will help you repair any property damage that might occur, and if your home itself is a total loss, then your plan will help you rebuild it.
Depending on the nature of the property damage, your lender might be able to demand that remittance be made to them. This will usually occur when you decide that you should cut your losses and not rebuild your home. The settlement will go to the insurer and be used to pay off the outstanding debt on your mortgage. Therefore, they won’t suffer an undue loss just because you didn’t choose to rebuild.
Still, regardless of whether your lender requires home insurance, you should still invest in it. All in all, it’s there to assist you in case of property damage, and ultimately can make you much more secure in your home. Don’t hesitate to work with your agent to get the policy that is best for you.