• What is a loss payee for a mortgage?

    In short, the loss payee on an insurance policy is who gets paid first if your house burns down.

    When you get a new mortgage, whether refinancing or purchasing, the lender needs to be listed as the loss payee. So don’t be surprised if your lawyer calls you up and asks you to arrange that with your insurance company.

    Logically this is a requirement for every lender because, the mortgage is secured against the home. If the home goes up in smoke, so does the security on the loan. They are assuring that they will recover the money and whatever is left over is yours. They’re just first in line, assuming that it is a first mortgage of course!

    Hence the terms first, second third position. It is the lender’s position in line to get paid if something goes wrong. This is also why second and third mortgages are so expensive, because the further down the line you are, the higher the risk. And as we always say, rate is directly related to risk!

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