Dear Dr. Don,
As I purchase a home, do I really need to have both hazard insurance and mortgage insurance? On my work sheet showing the estimated cash required at closing, my lender lists both kinds of insurance. The hazard insurance is $62.50 and the mortgage insurance is $134.21. If I can avoid this added cost, I'd like to keep the money.
-- Elaine Expunge
Both forms of insurance are required ultimately to protect the lender.
Hazard or homeowners insurance protects the value of your home by paying for home repairs in the event of a covered loss.
Mortgage insurance protects the lender from loss if you stop making the mortgage payments. For conventional loans, the requirement kicks in when the borrower finances more than 80 percent of the appraised or market value of the home. Mortgages with high loan-to-value ratios pose greater risk to the lender. The risk is offset by your purchase of mortgage insurance.
I recently had a claim on my homeowners policy when pipes burst after cold weather. The insurance check was made out to three parties: me, my wife and the bank. That's a reminder that the bank also has an interest in having the property repaired.
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