Understanding the Impact of Increased Home Insurance Rates on Mortgage Payments

As a homeowner, managing your finances effectively is crucial, especially when it comes to your mortgage payments. One factor that can significantly impact your monthly mortgage payment is an increase in home insurance rates. At O1ne Mortgage, we understand the importance of keeping your mortgage payments manageable, and we’re here to help you navigate these changes. If you have any questions or need assistance with your mortgage, don’t hesitate to call us at 213-732-3074.

How Do Increased Home Insurance Rates Impact Mortgage Payments?

Your monthly mortgage payment often includes homeowners insurance expenses and taxes, along with your principal and interest. This combination is known as PITI (Principal, Interest, Taxes, and Insurance). Lenders or loan servicers may require this setup, holding these expenses in an escrow account to pay bills on your behalf at a later date. Even if not required, many homeowners choose this option for easier management of housing expenses.

Homeowners insurance rates can fluctuate from year to year, causing your mortgage payment to rise or fall. To account for these changes, your servicer conducts an annual escrow review to determine if there’s an overage (too much money in the account) or a shortage (too little money in the account) to cover costs for the coming year. If there’s an overage, you may receive a refund from your lender. However, if there’s a shortage, you’ll need to make up the difference either through an upfront payment or by spreading out the additional amount over upcoming mortgage payments.

What to Do if Your Homeowners Insurance Increases

If your homeowners insurance rates go up, there are several steps you can take to minimize costs while still getting the coverage you need:

Shop Around

Even if you’re satisfied with your current policy, it’s wise to compare prices for the same type and amount of homeowners insurance from other providers. Check with your mortgage company to understand how much coverage you need and compare rates from different insurance companies online or with an agent. If you decide to switch insurance companies, inform your lender before purchasing a new policy to ensure the paperwork is in order for billing and payments to the new insurance company. Additionally, provide proof of cancellation of the old policy once your new coverage begins.

Bundle Home and Auto Insurance

Whether you stay with your existing insurance company or shop around, you may save by “bundling” multiple types of insurance, such as home and auto, from the same provider.

Look for Special Discounts

Ask your agent about additional ways to save. Homeowners insurance discounts vary by company, but you may see savings for being claim-free for a certain number of years, working for a specific employer, being retired, or belonging to an alumni or professional organization.

Increase Your Deductible

If raising your deductible is within your budget, it could help lower your homeowners insurance premiums. However, ensure you can still cover extra costs if you have a loss, as your claim payout will be reduced.

Ask for an Escrow Review

After lowering your home insurance rates, your mortgage payment amount won’t automatically update to reflect the new costs. Contact your loan servicer to request an escrow review or wait for your annual escrow review for any changes to take place.

How to Avoid Homeowners Insurance Rate Hikes

Homeowners insurance premiums cost an average of $1,411 per year nationwide, according to the National Association of Insurance Commissioners. Rates vary widely based on factors such as the type and amount of coverage, construction costs in your area, your home’s age, and history of past insurance claims.

One of the best ways to prevent a spike in your premium is to file claims sparingly. Look for ways to make your home safer to avoid needing to file a claim or save on costs, such as installing a security system. Remember, homeowners insurance should only be used for major losses. Before filing a claim that could cause your rate to increase, consider your deductible and whether you can afford to cover the cost of a repair out of pocket.

Evaluating your level of coverage can also help you save. Periodically check your policy against current market rates to see how it compares. If you find that you’re overpaying or have maxed out all available discounts, it may be time to shop around for a new plan.

The Bottom Line

Paying your homeowners insurance premium as part of your monthly mortgage can help you spread out payments over time. However, your mortgage payment can increase if your insurance rates go up. You may be able to find new ways to save with your existing insurance provider or shop for a new plan that offers better rates for the same coverage.

To keep your insurance premiums lower in the long term, improving your credit score may help, especially in states where credit-based insurance scores play a role in calculating your premium. Monitoring your credit with a service like Experian’s free credit monitoring offers access to your FICO® Score based on Experian data and your Experian credit report. You’ll be able to track progress and get real-time alerts when any changes are made to your credit report, helping you address potential issues and avoid significant damage to your score.

At O1ne Mortgage, we’re committed to helping you manage your mortgage payments effectively. If you have any questions or need assistance with your mortgage, please call us at 213-732-3074. We’re here to help you find the best solutions for your financial needs.