Let me start off by saying I have no nefarious plans in mind - this question was prompted by a news story about a house fire. And so…
You have a house and a mortgage. You suffer a catastrophic loss of your house - fire, or a giant sinkhole, or space junk flattening the place - doesn’t matter. But you have insurance, so your house can be rebuilt and refilled with stuff.
Do you still have a mortgage? Does the insurance company pay off the mortgage, leaving you to get a new one to build the new house? Or, assuming the equity works out, could insurance pay off the mortgage and still leave enough to build another house, tho perhaps smaller, leaving no new mortgage? Or is there another option that I totally missed? Would it depend upon the policy?
Yeah, you still have a mortgage. The bank will require that you pay that off, and any remaining insurance proceeds can be used by you. (This is why your bank requires an adequate insurance policy before they’ll give you the loan in the first place.)
What you do after the bank is satisfied is up to you. If you have enough cash left over from the insurance and savings to build a new house, go nuts. Otherwise, you can get a building loan from the bank, or sell the land and buy a new house, etc. It’s up to you.
When you spell it out all logical like that, I get like this: :smack: Of course the insurance is to protect the bank’s interests first. I should keep my stupids to myself. Thanks!
I don’t think that’s any different than here in the U.S. If you purchase a $1million house that’s located on a beautiful lot on a lake and house itself is only worth $200K, you could easily have a mortgage for $800K but only need to carry $200K of insurance. If the house is destroyed you can still pay off the mortgage by the $200K of insurance and selling the $800K lot. That’s all the bank cares about.
Isn’t it an option to just keep up the mortgage payments and to use the insurance proceeds to rebuild? At the end, you’re back to where you started; with the same (or similar house) in the same location and the same mortgage.
Here in the US, once you and the insurer agree upon the amount of loss to the dwelling, a two party check is issued naming both the insured and mortgagee as payees (as spelled out in the policy) and each party must endorse the check. On large losses, the mortgage company usually requires the insured to endorse first and provide them with the check. The mortgage company will then verify repairs are proceeding and release partial payments accordingly based on percentage of completion. In the event the insured makes no effort to repair the property, the mortgagee has the option to apply the settlement to the outstanding principal of the loan in order to protect their insurable interest.
Any loss settlement applying to contents is settled with a separate check payable to the named insured(s) only as the mortgagee has no insurable interest in contents within the dwelling.
We had a house fire a couple years back. . . the insurance (USAA) submitted funds that were held by our mortage co (Countrywide) in escrow and then we selected a rebuilder (CR) that submitted a contruction schedule to Countrywide. Periodically a Countrywide inspector would come by and check the progress and then submit a check to our CR.
Basically, in our case, the mortgage company was highly involved, it is their investment, after all.