Every newly hitched couple dreams of owning their own home. Many variables determine the affordability of your dream house including the interest rate, sales price and down payment. Your monthly mortgage payment takes into account not only your interest rate and sales price but also your escrow payments for home insurance and property taxes. Some young couples consider dropping their home insurance after closing to lower their monthly mortgage payment.
An escrow account holds the money for your property taxes and home insurance premium payments that are paid out on an annual basis. Your lender deposits money into this account each month when you make your mortgage payment. Once a year, they pay your local property taxes and make your insurance payment.
All homes purchased using a mortgage loan must be covered under a home insurance policy. You provide proof of a home insurance policy at closing and sign paperwork stating you will maintain home insurance on the property at all times. When you sign up for an insurance policy, you give the insurance company the name of your mortgage lender. Your insurance company notifies your lender of all changes to your insurance policy.
Benefits of Home Insurance
Home insurance protects your pocketbook in the event of damage to your house. Weather, fire and theft all damage your property. Having home insurance ensures you do not pay out-of-pocket for the entire cost of fixing damage to your property. It also ensures that the mortgage company gets their money back should the house be totally consumed by fire or natural disaster.
Canceling Your Home Insurance
You can cancel your home insurance policy at any time. Your choice of insurance company is left to your discretion by your mortgage holder. You must insure your home with some form of homeowners insurance and instruct that insurance company to notify your lender of their policy on the property.
Failure to maintain insurance on your property does come with steep consequences. Your mortgage holder keeps all correspondence regarding your insurance policy. When they discover a lapse in your insurance, they acquire insurance on the property for you. Their insurance may contain a higher rate thereby raising your monthly mortgage payment. It may also contain terms you do not want in your homeowner's policy. The bottom line is you must have some form of home insurance on your property at all times after closing escrow on your home.
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