Mortgagee Clause Explained: Protect Your Home and Finances
March 28, 2025
5 minutes
60% of homes in the US have a mortgage in the first quarter of 2024. Generally, the home serves as collateral on the loan, and a mortgage lender will ensure that the property is insured. One such way is through a mortgagee clause, where the lender is protected in case your home is damaged or destroyed.
It is important to understand a mortgage clause as it has an impact on your responsibilities and rights as a homeowner. If you want to find the top lenders who will offer the best terms without jeopardizing your investment, then check out reAlpha. The platform’s AI-powered features can help you find the best lenders.
What is a Mortgagee Clause?
A mortgage clause is a special agreement between a mortgagee and a property's insurance provider. The clause protects the mortgagee if the property that is mortgaged is damaged. The protections may be geared towards the lender; however, it will benefit the borrower as well.
A mortgagee clause in the homeowner's insurance policy can cover up costs that would otherwise put them in a bigger debt to the lender. However, the clause requires the insurer to pay out when all the claims covered in the insurance policy are made.
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Mortgagee vs Mortgagor: What is the Difference?
A mortgagee and mortgagor are two members that are part of the mortgage agreement. A mortgagee is a lender who approves a loan and collects monthly payments for it. They can be an entity or individual.
A mortgagor is the borrower who takes a loan to purchase a real estate property. They can be anyone from an organization or an individual. Once they get the loan, they are responsible for making monthly payments to repay it.
If the mortgagor defaults on the loan, the mortgagee can foreclose the property or sell it. If the property is damaged, then the borrower cannot make monthly payments. The clause will be useful in the situation as the mortgagee will be paid if the property is damaged.
Knowing your rights is crucial. Explore how a mortgage contingency can protect borrowers during the home-buying process.
Additionally, understand terms like the acceleration clause, which lenders can invoke if borrowers default on payments.
How Does a Mortgagee Clause Work?
A lender requires the mortgagors to purchase a homeowners insurance policy to protect the house against damages. The common type of damage is caused due to
- Lightning strikes
- Fire and smoke
- Wind and hail
- Personal liability
- Vandalism or theft
A mortgagee clause is designed to protect the lender against any loss to property. However, it doesn’t offer protection against floods, earthquakes, or normal wear and tear. The lender gets covered by the outstanding amount that the mortgage needed to pay or restore the property
The mortgagee clause is part of the homeowner's insurance policy, but it's an agreement with your lender and insurance company. In most cases, the clause is added to the mortgage policy and its approval is important for the mortgage loan to proceed.
Even if the property has been damaged or destroyed, the clause guarantees compensation for the loss. The protection is applied even if the damage is intentional by the borrower. However, the insurer will consider the policy void if it is found that they committed arson.
Finally, a mortgagee clause allows the insurance company to notify the lender if you stop paying the insurance premium or is canceled. The lender can get a new policy with a different provider and add additional costs to the monthly mortgage payment.
To ensure clarity about your mortgage and insurance agreements, work closely with a reliable mortgage loan originator.
Your loan type can influence your lender’s requirements. Learn more about the differences between 15-year and 30-year mortgages.
The Four Components of a Mortgagee Clause
A few terms that you can see in a mortgagee clause.
1. Lender Protections- This is the heart of the clause and protects the lender against financial losses and limits exposure when property is damaged. It is applicable even if the property is damaged by the borrower.
2. Loss Payee- A loss payee is the party that is entitled to get the reimbursement from the insurance company. A mortgage clause is sometimes referred to as a loss payee clause.
3. ISAOA- ISAOA stands for its successors and/or assigns. This means that the mortgagee has the option to sell the mortgage in the secondary market. They can also assign service rights of the loan to third-party servicers.
4. ATIMA- ATIMA stands for as their interests may appear. It helps extend the insurance coverage to third parties which the lender is doing business with and could suffer losses. This is applicable even when they are not named in the policy.
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Are Mortgagee Clauses Necessary?
A mortgagee clause is an important protection that a lender has in the possibility of property damage. These clauses are usually signed when you apply for a mortgage clause for your home.
Before you agree to a mortgage clause, understand the specific conditions related to it and the mortgage. If you want help to find a reliable mortgagee, you can check out reAlpha. The platform has vetted lenders near you; check them out today.
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Frequently Asked Questions About Mortgagee Clauses
Is the mortgage clause important in real estate transactions?
Yes, most mortgage lenders will approve a mortgage application only if the mortgage clause is attached to the homeowner's insurance policy. The clause protects the lender if the property is damaged or destroyed, ensuring it is reimbursed for the loss.
Who is the mortgagee, and who is the mortgagor?
A mortgagee is a lender who offers a loan to a lender. A mortgagor is a borrower who wants to take a loan to purchase a property.
Where can I find my mortgagee clause?
A mortgagee clause can be found on the mortgage statement or any documents related to the mortgage provided by the lender.
How to remove a mortgagee clause?
A mortgagee clause can be removed by the lender or mortgage servicing company in the mortgage agreement.
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Article by
Rocky Billore is a mortgage industry leader and Chief Sales Officer with over two decades of experience across residential and commercial lending. Since entering the industry in 2004, he has been directly involved in funding more than $1.4 billion in loans. A recognized expert in VA and government lending, Rocky combines deep program knowledge with a data driven, relationship-first leadership style. His work focuses on building scalable sales organizations, developing high performing teams, and aligning technology with real world lending outcomes to improve the homeownership experience.