What happens to mortgage if homeowners insurance is cancelled

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When it comes to owning a home, having homeowners insurance is essential for protecting your investment. However, what happens if your homeowners insurance is cancelled? This article will explore the implications of cancelling homeowners insurance on your mortgage and the potential consequences that homeowners may face.

Impact on Mortgage

Requirement for Homeowners Insurance: Homeowners insurance is typically a requirement for obtaining a mortgage. Lenders want to ensure that their investment is protected in the event of damage or loss to the property. Therefore, when you apply for a mortgage, you are usually required to provide proof of homeowners insurance.

Lender-Placed Insurance: If your homeowners insurance is cancelled or lapses, your lender may step in and purchase insurance on your behalf. This is known as lender-placed insurance or force-placed insurance. While this insurance protects the lender’s interest, it is often more expensive and provides limited coverage compared to traditional homeowners insurance.

Escrow Account: Many homeowners have an escrow account set up with their mortgage lender. This account is used to collect funds for property taxes and homeowners insurance. If your homeowners insurance is cancelled, your lender may use funds from the escrow account to purchase lender-placed insurance. This can lead to an increase in your monthly mortgage payment to cover the higher insurance cost.

Consequences of Cancelled Homeowners Insurance

Violation of Mortgage Agreement: Cancelling homeowners insurance without a replacement policy can be a violation of your mortgage agreement. This can result in penalties imposed by the lender, including potential foreclosure proceedings.

Increased Financial Risk: Without homeowners insurance, you are exposed to significant financial risk. If your home is damaged or destroyed by a covered peril, such as a fire or natural disaster, you would be responsible for the repair or rebuilding costs out of pocket. This can be a significant burden for homeowners, especially if they do not have sufficient savings to cover such expenses.

Difficulty Obtaining New Insurance: If your homeowners insurance is cancelled, it may become more challenging to find a new insurance provider willing to cover your property. Insurance companies may view a cancelled policy as a red flag and may be hesitant to offer coverage. This can leave you with limited options and potentially higher premiums.

Steps to Take if Homeowners Insurance is Cancelled

Contact Your Insurance Provider: If your homeowners insurance is cancelled, the first step is to contact your insurance provider to understand the reason for cancellation and explore options for reinstatement or finding alternative coverage.

Notify Your Mortgage Lender: It is crucial to inform your mortgage lender if your homeowners insurance is cancelled. They may have specific requirements or recommendations for obtaining new coverage. Failing to notify your lender can lead to further complications.

Shop for New Insurance: Start shopping for new homeowners insurance as soon as possible. Reach out to multiple insurance providers to compare quotes and coverage options. It is important to find a policy that meets your needs and satisfies your lender’s requirements.


In conclusion, cancelling homeowners insurance can have significant consequences on your mortgage. It is crucial to maintain adequate coverage to protect your investment and comply with your mortgage agreement. If your homeowners insurance is cancelled, take immediate action to reinstate coverage or find alternative insurance to avoid potential penalties and financial risks.


– www.insurance.com
– www.bankrate.com
– www.investopedia.com