With interest rates at an all-time low, many New Hampshire homeowners are refinancing their homes. This is a great way to lower your monthly mortgage payment, but there are some issues that need to be considered in regards to a new mortgage holder and your NH homeowners insurance.
"What do you mean I am required to have flood insurance?"
When you change mortgage holders, you are subject to their requirements. This may include adhering to the newer flood map revisions that have been done by The Federal Emergency Management Agency (FEMA) in recent years. Your prior mortgage holder may not have caught up with updated maps, but many residents that were not considered in a high-risk flood zone just a few years ago, now may find themselves mapped into one. If this is the case, the mortgage holder will most likely require you to get a flood insurance policy.
We have seen this requirement come as a surprise to many of our clients. To get an idea of the premium that clients are paying, link to FEMA's premium example page, as it is FEMA that sets the rates.
The only way not to pay the premium determined by FEMA is if you have a current elevation certificate from an engineer and your specific lot surveyed. The survey may prove that your property's elevation is higher than originally mapped and this can make a big difference in the premium.
This very situation recently happened to a Holt Proctor McBriarty Insurance Agency client. The original flood quote provided was $1081 for the year. The client decided to invest in a survey and proved that the home's elevation was much higher than originally mapped. The annual premium was reduced to $221 a year. However there is no guarantee that there will be a reduction in premium as it would have to be justified in the survey.
For more information about NH Flood Insurance, please go to the HPM Insurance research center.
"The mortgagee wants me to change the amount of coverage I have on my home!"
When you insure a home, there are at least two parties looking at how much coverage you have on the policy:
1. The mortgage holder: They want to ensure your dwelling coverage is equal to or greater than the mortgage amount.
2. The insurance company: They want to insure your home for the actual cost of replacing your home.
Sometimes these parties can disagree. The purpose of insurance is to be able to bring you back to where you were before the loss, so insuring your home for how much it would actually cost to rebuild makes sense. The mortgagee wants to ensure that its interests are covered so they want to have the insurance to be at least equal to this amount. This too makes sense, but what happens when your mortgage is more than the replacement cost of your home? Though this doesn't happen nearly as much as it did a few years ago, it does come up.
When thinking about refinancing, think about how much the mortgage amount will be and if this amount is covered by your existing insurance. If it does not, give your insurance agent a call to discuss. There are alternatives, but it can vary by the age of your home and your specific insurance company.
"Why do I have to pay my premium in full?"
When you refinance, the mortgage company wants to see your homeowners premium paid in full at closing. This is a detail that is not often discussed with the mortgage broker and often upsets the client. Be sure to ask if this will be a requirement with any refinance.
You will also want to double check how the mortgagee will handle the homeowners premium payment upon renewal. Is your premium currently paid by your mortgage company out of an escrow account? Will it continue to be with the new mortgagee? The billing of your homeowners insurance may also need to be changed with the new bank information to ensure that a bill doesn't slip through the cracks. Be sure to update your insurance agent with this information.
Refinancing can save you thousands of dollars over the long run. Just be sure that you have all the facts to make sure it is worth it.