Mortgage implication if property underinsured

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RichieRich

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This question came up in work last week and nobody seemed to have a definitive answer. If a mortgaged property is underinsured, is there an onus on the mortgage holder to inform the lender and what are the implications therein in relation to the mortgage? (Clearly the insurance implication is that any claims would only be partially paid).

Thanks
 
I can't see what onus there would be on the mortgage holder other than the original condition on the mortgage that the property must be insured, that said many people dropped insurance cover both life and buildings back when Tiger died and they couldn't afford anything!

From the bank's point of view the mortgage holder is going to be liable for the mortgage insurance or not even if the house burns down.
 
Presume you mean underinsured for the mortgage amount and not underinsured in general (rebuild costs)

Don’t the banks know if it’s underinsured for mortgage purposes? As a noted/interested party in the policy aren’t they informed of any changes?

I recently received a letter from my mortgage provider noting that my insurance had lapsed and as part of my mortgage I was obliged to have cover etc etc

I actually changed insurance company and forgot to send letter of noted interested party on to my mortgage provider.

My old policy provider notified my bank that I no longer had a policy with them.
 
No onus. Back in the day it used to be that the banks securities department checked up occassionally on your house insurance. But you will end up responsible for the short fall. It's like when a car dealer offers you GAP cover when you buy on HP, you dont have to take it but you are going to be responsible for the difference.
 
In theory a lender could pursue this with all their mortgage customers as there's always a standard clause in a loan offer that says the customer must maintain adequate property insurance. In practice they rarely bother checking up on it, unless they get a letter and this triggers a response, as in post #3 above.

If a house burns to the ground and is underinsured, you'll still be on the hook to pay the mortgage.
 
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