Does the homeowner’s insurance have to cover the mortgage amount?
Friday, June 19th, 2009 at
10:28 am
g.milsteintorres asked:
The market value of the house is worth 300K.
The loan amount is of 275K.
The cost to rebuild is 200K.
The market value of the house is worth 300K.
The loan amount is of 275K.
The cost to rebuild is 200K.
Would you be required by the mortgage company to get insurance to cover the loan amount of 275K?
Tagged with: Homeowner S Insurance • Insurance Cover • Mortgage Company
Filed under: Homeowners Insurance
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Yes – the mortgage company has to protect their investment. If something happens to the home, the mortgage has to be paid in full.
There are some exceptions, but this is the general rule.
The reason the mortgage company gave me when I purchased my home made sense. Although it may cost a lot less to rebuild than the loan amount, if you choose not to rebuild, they are out the money.
It’s the loan you are securing not the house. The bank wants to be sure they get their money.
You generally buy replacement cost coverage for the house, which in your case, would be $200,000. The land value isn’t going to change even if the house burns to the ground. I’m assuming the land value in this case is $100,000.
Legally, no, but that doesn’t mean the mortgage company won’t give you a HORRIBLE time over it.
Legally, as long as your house is insured for 100% replacement cost, and the policy SAYS that, and the insurance company agrees that your house is insured for 100% of the replacement cost, the mortgage company should accept that.
However, it will be a battle – and likely, you’ll be fighting that battle EVERY SINGLE YEAR when your policy renews, until the loan balance drops under the policy amount.
You can ask your AGENT to fight that battle for you.
The mortgage company by law cannot require you (or your insurancecompany) to insure the house for the mortgage amount if it is more than the cost to rebuild. They must accept you insuring it for the cost to rebuild.
The mortgage company will accept replacement cost coverage. Your insurance agent should intercede on your behalf. Loan underwriters with experience know this.
The mtge company will requite the amount of the rebuild.
At the end of the day you still owe them the mortgage in any event.
If the house was rebuilt they could always resell it and the land has a value in any event
Normally i would suspect that the amount of insurance would be a lot higher as you would also be insuring the contents.
yes, ma’am. They have to protect their interests. If your house burns down and you do not rebuild then the value goes down and they can not recoup there investment.