Is House Insurance Cheaper Without a Mortgage?

September 27, 2022

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If you’ve paid off your mortgage, you’ve achieved quite the milestone! Many people never accomplish this; if they do, it takes decades to do it, so you should be proud!

Not having a mortgage can be incredibly freeing. There’s no more stress of making the mortgage payment, and you can start aggressively saving for retirement or other goals, not to mention how much your net worth increased when you owned your home free and clear.

But there’s one big question most people have, is house insurance cheaper without a mortgage?

The answer isn’t what you might think.

Do I Need to Worry About Home Insurance After Paying Off the Mortgage?

First, let’s talk about if you need home insurance.

The law doesn’t require it like they do auto insurance, so no one requires you to have it after you pay off your mortgage. However, there are reasons you’ll still want it. 

Mortgage lenders require home insurance for all borrowers because it protects both parties. For example, if you had a total loss, such as a fire, the insurance company would pay for rebuilding your house. This ensures you and the mortgage company don’t have a total loss.

After you pay off your mortgage, you don’t have a lender that requires insurance. But just like when you had a mortgage, home insurance protects you. So what would happen if you had a major disaster?

To protect your finances, carrying home insurance is a smart decision.

What Happens if you Don’t Have Home Insurance?

If you don’t have home insurance, you are responsible for the cost of all damages that might occur. This doesn’t just mean a house fire or tornado wiping out your house.

Vandalism, theft, weather damage, frozen pipes exploding, and falling objects are just a few examples of home damage issues you can experience, costing thousands of dollars.

Without home insurance, you’d have to cover the cost of repairs for any issue that happens to your home. According to the Insurance Information Institute, the average homeowner’s insurance claim totals $13,955. That’s a lot more than what most home insurance premiums would cost for a year.

Is House Insurance Cheaper Without a Mortgage?

calculating savings
Photo by Karolina Grabowska

Now that you know you shouldn’t go without home insurance, it begs the question, is my house insurance cheaper without a mortgage?

The answer, unfortunately, is no, it’s not cheaper. Here’s why.

Insurance companies take the same risk insuring your home whether you have a mortgage or not. The mortgage company requires you to have home insurance, but it doesn’t make the policy more expensive.

You’ll likely need the same coverage after you pay off your mortgage unless something drastic changes with your house, making it worth less than before.

However, a loss is a loss, and it costs the insurance company the same amount of money to pay your claim to rebuild your home or fix the damages, whether you have a mortgage or not.

Ways to Make Home Insurance Cheaper

The good news is that there are ways to make home insurance cheaper. Even though paying off your mortgage doesn’t affect your house insurance premiums, these factors can help lower them.

Determine if you can Afford a Higher Deductible

If you carried a low deductible when you originally bought home insurance, consider if you can afford a higher deductible now. This can lower your premiums.

Check your budget to see how much you can afford to put aside for an account strictly for your deductible. If you don’t have an official budget yet, consider using an app like YNAB (You Need a Budget) to create one. It’s one of the top-rated budgeting apps and helps you stay on track with your spending and saving. 

If you can afford to increase your deductible, your premiums will decrease. The typical deductibles are $500, $1,000, and $2,000, but you can talk to your insurance agent about any deductible you think you can afford.

Remember, your deductible is the amount of the damages you must cover before your home insurance reimburses for any damages, so don’t overdo it.

Ask About Discounts

Most insurance companies offer discounts, but you have to ask for them. For example, if you have car insurance and bundle it with the same insurance company, you might get a discount on both policies.

Some home insurance providers to consider are:

Most insurance companies also provide discounts if you install a security system, opt-in to paperless billing, or set up auto payments. 

Each insurance company offers different discounts, so always ask what discounts are available to you.

Limit your Claims

The fewer claims you have, the less risk you pose to insurance companies. Claims can increase your premiums by as much as 20% or more. Only file a claim for significant issues, and pay for the smaller issues yourself.

Even though it feels like you should use your insurance because you pay for it, you’ll usually save much more money paying for the damage and leaving your insurance alone.

Shop Around 

Every year or couple of years, shop around for cheaper home insurance. You might find more affordable premiums changing insurance companies every couple of years because most insurance companies have lower rates for new customers to entice them to switch. 

Steps to Take After Paying off Your Mortgage

Woman walking up steps

After you celebrate that you have paid off your mortgage, there are a few more steps to take with your home insurance.

Notify your insurance company that you paid your loan off

Your lender’s name is on your insurance policy because they own a part of your house. If you had a loss, the insurance company would make the claim payment to you and the mortgage company.

After you pay your mortgage off, the lender shouldn’t be on your policy. It’s up to you to notify the insurance company, though. Send them a copy of your paid-in-full letter to prove they can remove your mortgage company.

Change your billing details

If your mortgage company handled your insurance payments, you’ll be responsible now that you no longer have a mortgage. Give your insurance company the correct billing address or set up automatic payments. Some insurance companies offer a discount for this option, so consider it if you are comfortable.

Add your insurance payment to your budget

Now that your mortgage company isn’t making your insurance payment, you have to adjust your budget. The good news is that you can take your large mortgage payment out of your budget, but don’t forget to add the insurance premium to it. 

Using a budgeting app with reminders of when your bills are due can be the easiest way, especially as you get used to paying your insurance bill. 

How Do I Pay My Property Taxes After My Mortgage is Paid Off?

Don’t forget, along with your home insurance, you must also pay your property taxes after you pay off your mortgage.

Property taxes can be a much larger expense than home insurance, so budgeting is essential. If you had an escrow account with your mortgage company, you paid 1/12th of your property taxes with your mortgage payment. Your mortgage company put the funds in a separate account and paid your property taxes when they were due.

Now it’s your responsibility. When you receive your tax bill, pay attention to how to pay it. Most counties have an online option, but you may also pay in person at the assessor’s office or mail a check.

Planning for Insurance and Property Taxes After the Mortgage is Paid Off

Now that you don’t have a mortgage, you must plan for your home insurance and property tax bills.

The good news is that you’re used to paying them monthly because they were a part of your mortgage payment. After that, however, you must set the money aside each month instead of the mortgage company doing it for you.

The best way is to create a sinking fund for home insurance and property taxes. Having two separate accounts shows how much you have saved, so you don’t risk not having the funds on the due date.

The easiest way is to divide each bill amount by 12 months and put that amount aside in an account earmarked for property taxes and home insurance. 

Keep in mind that if you don’t pay your property taxes on time, you risk having a tax lien on your property. It’s just as serious as not paying your mortgage, so take the sinking fund for your property taxes seriously. 

Of course, home insurance is important too, because, without it, a loss could leave you and your family homeless.

Final Thoughts on Is House Insurance Cheaper Without a Mortgage?

The answer to ‘is house insurance cheaper without a mortgage,’ is, unfortunately, ‘no,’ but there are other ways to keep your costs down. 

Remember, though, that after you pay off your mortgage, you must make your home insurance and property tax payments on time. They are now your responsibility so revamping your budget and keeping your budgeting apps up to date is the key to success.

Are you working on becoming mortgage free? Were you wondering if homeowners insurance was going to be cheaper after paying off your mortgage?

Please let us know in the comments below.

Kim Pinnelli

Kim Pinnelli has been a professional financial writer for 15 years and has a bachelor’s degree in Finance from U of I at Chicago. Kim enjoys helping consumers learn how to take charge of their credit and personal finance while empowering them to learn how to make important financial decisions.

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