Do you want to know an easy way on how to possibly save hundreds of dollars per year on your mortgage payments, and perhaps thousands over the life of your mortgage? Of course you do, however, the way to do that may not be what you think.
What I’m talking about is homeowners insurance. Technically, homeowners insurance is not considered a finance charge as it pertains to mortgage lending. But, should it be?
When financing real estate, even if someone was foolish enough to forgo homeowners insurance, their lender would still require it. The thing to consider here is, not all homeowners insurance policies are priced equally.
Personally, I applaud it when someone does a certain degree of rate shopping before deciding on whom to make the very important choice of which lender to entrust. The communication necessary during the house hunting stage, followed by the processing and closing stages of their mortgage application is crucial. The individual lender can even make or break a buyer’s chance of getting their offer accepted. Therefore, shopping for the best lender who is going to provide the best combination of rate, cost, and service is extremely important. However, compared to many other products and services, there usually isn’t as much of a variation in the costs for mortgage services. As a result, the hunt for the best lender usually comes down to service. This is because when comparing apples to apples in regard to closing costs, credit score, loan amount, loan type, etc., the majority of lenders will tend to be in the same range for interest rate. For many lenders, when comparing apples to apples against their competition, a 1/8% variance in rate is typically a big difference, and a 1/4% difference in rate is very rare. See APR graph example below:
(Note: A 0.125% difference in rate on a $200,000 mortgage makes a $14.80 per month difference in payment.)
Indeed, the choice that someone makes on whom to get their homeowners insurance with may often prove to be far more costly than who they choose to get their mortgage loan with. As lender’s, it’s not unusual for us to see homeowners insurance quotes all over the board. For the same coverage & same deductible, we have seen quotes for the same person looking to insure the same property ranging from under $600 for an annual premium, to over $1,800 for an annual premium. Surprisingly, these inconsistencies in the pricing of homeowners insurance policies are not extremely rare. Therefore, it is just as important to shop for your homeowners insurance as it is also important to shop for your mortgage lender. See homeowners insurance premium graph example below:
(Note: A $500 difference in homeowners insurance premium makes a $41.67 per month difference in payment.)
When someone has a fixed rate mortgage, their terms are locked and cannot be changed without refinancing, this is not true with homeowners insurance. If your homeowner’s insurance premium has increased over the years or wasn’t the most competitive to start, you may change to a new insurance provider, even if you have an escrow account. Just think, if you were to reduce your mortgage escrow by $41 per month, that would be an easy way to apply an extra $41 per month to the principal balance and maybe shave off 4 to 5 years from the life of your mortgage – without even noticing it!
This blog is by no means intended to persuade someone to change their insurance company. There are a lot of good insurance company’s out there, and even more really good insurance agents. Additionally, if you have a good relationship with your insurance provider, and he/she takes good care of you, that’s not worth leaving for $100 – $200 per year, service and trust count for a ton. Furthermore, it is important to note that as with lending, there are variables regarding the property and with the individual being insured which an insurance company must consider when quoting a policy.
What this blog is intended for, is to discuss an easy way to look to save some money. Refinancing one’s mortgage is no longer an easy answer to do so in this current market. Since mortgage rates have risen over the past 12 months or more, there are not too many homeowners at this time (as a percentage) that are paying over current market interest rates. There may be many more homeowners that are paying above market for homeowners insurance, so it is worth doing a checkup.
NOTE: As a mortgage lender, we do not have any affiliations with any homeowners insurance providers. Unless asked, we do not normally refer any insurance companies or any individual insurance agents. The exception would be when someone is being quoted a higher than normal premium that will affect their debt-to-income ratios.
RATE UPDATE: Although, we are a full-service lender, we’re not afraid to stack up our rates against anyone! The 30-year fixed MSHDA MI Home Loan is currently at 4.375% (APR 4.479%). This loan also has reduced PMI compared to traditional Conventional mortgages. We are enjoying a large increase in the closing of our MSHDA Loan volume. Please see MSHDA Income Limits here, and call me for details. We’re always here when you need us.