Is Homeowners Insurance Included in My Mortgage Payment?

Is Homeowners Insurance Included in a Mortgage?

Homeowners insurance is typically included in your mortgage payment if you have a government-backed loan, your down payment is under 20% or your lender requires it. If it's wrapped into your monthly bill, then your lender takes the portion that goes toward homeowners insurance and deposits it into an escrow account. They'll pay the insurance bill on your behalf when it's due.

Your mortgage payment may come with several types of insurance:

• Homeowners insurance: Homeowners insurance can financially protect you against covered incidents such as windstorms, theft, vandalism and liability lawsuits.
• Mortgage insurance: Mortgage insurance is a type of policy that protects the lender if you default on your loan payments. You might be required to pay for it depending on your down payment and the type of mortgage you have.
• Additional insurance: Other types of insurance may be required based on the home's location, such as flood insurance. There are also optional policies, such as earthquake insurance.

What Else Do Mortgage Payments Include?

Mortgage payments can include money for your principal, interest, taxes and insurance (PITI). Here's a closer look at each part of your PITI:

• Principal: The mortgage's principal is the amount you borrowed. Part of each loan payment pays down the principal, allowing you to pay off the loan over time.
• Interest: Part of your payment will also go toward the interest that accrued since your previous payment.
• Taxes: Your property tax payments may also be wrapped into your mortgage bill. Like homeowners insurance, tax payments are deposited into your escrow account and paid on your behalf.

Learn more: How to Pay a Mortgage

Should You Include Homeowners Insurance in Your Mortgage?

Because homeowners insurance protects their investment, lenders typically require borrowers to carry it. Wrapping the premium into your monthly payment helps ensure there's no lapse in coverage.

Homeowners insurance will be included in your mortgage if it's legally required. But if it's not, then you have two options: Request an escrow waiver (and pay the premiums directly) or choose to keep the escrow account and have your premiums bundled into your monthly payments.

• When to include homeowners insurance in your mortgage: This may be preferable if you want to simplify your bills and make just one monthly payment that covers your home-related costs. This option could also save you money, since lenders may charge a fee or a higher interest rate when you don't use an escrow account.
• When to pay homeowners insurance directly: Consider opting out of the escrow account if you want flexibility. If you only have to pay home insurance premiums annually, for example, you could make short-term investments with the money throughout the year.

Learn more: How Much Homeowners Insurance Do You Need?

What if My Mortgage Company Fails to Pay My Home Insurance?

If you have an escrow account and are paying your mortgage on time, the mortgage company could have a legal obligation to pay your home insurance premiums. It may even be required to make the payments on your behalf if there isn't enough money in the account.

But mistakes can happen. If you see that a payment was missed and the policy is still in place, reach out to your mortgage company and ask it to correct the mistake right away. If it doesn't, you may want to send a separate "notice of error," and the company may have to make the payment and cover related fees.

If your homeowners insurance policy was canceled because of nonpayment, you may still be able to reinstate it after the past-due balance is paid. You may also want to contact an attorney if this happens after your policy lapsed because the mortgage company didn't pay your insurance premiums.

Frequently Asked Questions

The Bottom Line

Many homeowners pay for their homeowners insurance and property taxes as part of their mortgage payment. But your options can depend on the type of mortgage you get, and they may change as you pay down your loan or if you refinance your loan. When you have a choice, consider whether you want to manage the bills or have the mortgage service pay them on your behalf.