What Happens to Your Mortgage if Your Home Insurance Is Canceled?

A canceled homeowners insurance policy that isn't renewed or replaced may violate your mortgage terms, resulting in penalties or even mortgage recall. Mortgage lenders typically require home insurance to protect their collateral (your home) and prevent significant financial losses in case of a covered peril.

Here are the potential implications to your mortgage after a home insurance cancellation:

• Penalties or Fines: Failing to maintain homeowners insurance can result in penalties or fines. These can be costly and add to your overall expenses. Lenders require you to obtain insurance coverage promptly to fix this breach.
• Recalled Mortgage: In the worst-case scenario, if you don't address the insurance lapse promptly, your mortgage could be recalled. This means your lender demands full repayment of the mortgage amount immediately. This can be financially devastating because you need to come up with the entire mortgage balance on short notice, potentially forcing you to sell your home or face foreclosure.
• Lender-Placed Insurance: To protect their interests, mortgage lenders may ensure that the property, serving as collateral for the loan, remains insured. They do this through force-placed insurance. This is typically more expensive than coverage you could obtain independently.

Lender-placed or force-placed insurance is a policy your mortgage lender purchases on your behalf to protect its interest in your property. This insurance kicks in when your homeowner's insurance policy lapses, is canceled or is deemed insufficient by the lender. The coverage focuses on protecting the structure of the home, which is the lender's collateral, rather than personal belongings or liability coverage.

As a homeowner, you can replace force-placed insurance with a policy of your choosing. This is often more cost-effective and allows you to tailor the coverage to better suit your needs.

Once you secure your insurance, inform your lender immediately so they can cancel the force-placed policy, which will remove the additional charges from your mortgage payments. This proactive step can save you money and provide more comprehensive coverage.

Lender-placed insurance usually costs more than standard homeowners insurance policies, mainly because insurers see greater risk when there's been a lapse in coverage. Additionally, because these policies are selected and purchased by the lender, not the homeowner, they lack the competitive pricing of policies that individuals actively shop for. The exact price of force-placed insurance varies, depending on factors like the home's value, location and the coverage amount the lender requires.

The homeowner ultimately bears the cost of the lender-placed insurance. This additional expense is usually added to the monthly mortgage payment, which means if your lender purchases a force-placed insurance policy, you can expect an increase in your regular mortgage payments.

If your home insurance gets canceled and you fail to renew it or find adequate coverage, your mortgage terms may be breached. This can lead to penalties or your mortgage being recalled.

Mortgage lenders typically require home insurance to protect their collateral (your home), and without it, you risk costly expenses if your home gets damaged from fires or vandalism. Understanding these consequences helps you protect your finances when homeowners insurance gets canceled.

Homeowners insurance plays an important role in protecting your home and financial well-being, along with maintaining your mortgage requirements. Get a better understanding of what happens to your mortgage if your homeowners insurance is canceled through our answers to frequently asked questions.

Why Trust MoneyGeek?

MoneyGeek analyzed quotes from multiple insurance providers across the U.S. using a profile that reflects the average homeowner. By considering different locations and companies, we aim to give a reliable estimate of what homeowners can expect to pay — showing why it’s important to compare rates.

Methodology

MoneyGeek evaluated homeowners insurance carriers incorporating insights and premiums from the official databases of Quadrant Information Services.

Homeowner Profile

For our analysis, we created a sample homeowner profile with the following characteristics:

• Good credit score (769–792)
• Home constructed in 2000
• Wood-frame construction
• Composite shingle roof

Homeowners Insurance Coverage Details

Unless otherwise specified, we used the following coverage limits to collect quotes for our comparison:

• $250,000 in dwelling coverage
• $125,000 in personal property coverage
• $200,000 in personal liability coverage
• $1,000 deductible

We also compiled data for policies with broader coverage to determine the best companies for insuring expensive homes, upping limits to $1 million in dwelling coverage, $500,000 in personal property coverage and $1 million in liability coverage.