This week we received another question from a viewer: “I am buying a house and I know I need to get homeowner’s insurance, but why are they collecting so much money for the insurance policy”?

If you are obtaining financing and are granting a mortgage to a lender, that lender will inevitably want you to pay your homeowner’s policy one year in advance. The lender will escrow or impound a certain number of months. At closing, buyers are asked to prepay their insurance for the entire year and to establish an escrow account for future insurance payments. After closing, the lender will collect monthly payments in anticipation of next year’s premium.

Your lender is very concerned about the preservation of their secured asset: your home. For you and their protection, your lender will require that homeowner’s insurance remains in place at all times during the life of the loan. Lenders require prepayment of insurance for the entire year as it means the lender is in control of the next payment for the following year.

In conclusion, do not be concerned, you are not overpaying. You are essentially just paying for that one year in advance and starting your escrow account.

Copyright © 2019 Stiles Law, All rights reserved. Stiles Law is a Massachusetts licensed law firm and all content is based on Massachusetts law. The information presented above is meant to be used for general informational purposes and it should not be construed as legal advice or legal opinion on any specific facts.