What Is a Mortgage Clause?

Purpose

• A mortgage clause protects a policy holder by protecting them in the event of loss on the property. A mortgage clause is included in property insurance policies for the protection of the mortgagee, or financial institution.
  
  

Standard Clause

• Mortgage clauses come in different types. A standard mortgage clause protects the mortgagee if harm or loss occurred by fault of the policy holder. If the homeowner burns down his house, the bank is indemnified and still collects money from the insurance company to cover the loan amount.
  
  

Open Clause

• An open mortgage clause is another type of clause that provides insurance payments first to the mortgagee and if there is enough money left, the mortgagor receives some. With an open clause, the insurance proceeds first go to the mortgagee to cover the extent of their interest. The homeowner only receives money if the mortgagee's amount is completely satisfied.