If you have decided to refinance your mortgage, you will be paying off your old loan with a new loan for better terms and a lower interest rate. Mortgage refinancing can often save a homeowner money in the long term and help them reach their goal of paying off their home even sooner than expected.
However, mortgage refinance isn't always an easy and straightforward process, especially when it comes to your homeowner's insurance. When you refinance, the lender still has an interest in the property and protects the financed property. This means you may need to purchase property or hazard insurance to cover any losses if your home is damaged by a flood, fire, or other significant event.
Homeowner's Insurance Requirements
Homeowner's insurance is a requirement during refinancing just as it was when you first obtained the loan to purchase your home. Many times, people pay the homeowner's premiums up front when they purchase the home. After that initial upfront payment, the premiums are often put into an escrow account and then tacked onto your monthly mortgage payments.
To obtain a new loan during refinancing, the new lender will need to go through the underwriting process on the loan. They will review your documentation and make sure that you currently have an active homeowner's policy in place.
A standard policy doesn't usually protect against floods or earthquakes. Most standard policies cover the home and personal belongings from fires, accidents, theft, and some natural disasters. Different lenders will have different requirements when it comes to homeowner's insurance coverage.
So, what you had in place before with your previous lender may not be sufficient for your new lender during the refinancing. If you are in a flood zone, for example, the new lender may require that you purchase separate flood insurance.
Choosing Your Policy
When choosing your policy, you always want to make sure you are purchasing adequate coverage for your property. You should always have enough coverage in place that you can be reimbursed for the costs of rebuilding your home and replacing personal belongings.
Insurance When Refinancing
Since no two lenders are alike, you will find that there may be different requirements and a different timeline involved. Some lenders will wait until the refinancing process is almost complete before requiring that you have your new homeowner's insurance policy in place. However, others will issue a loan commitment contingent on having your insurance already in place.
When refinancing and securing new homeowner's insurance, you are not obligated to stay with your current insurance company. You can shop around and find the insurance company that is the best fit for you. Doing so can also potentially save you money on your policies as well.
So, while you save money by refinancing your home loan, why not do your research and save even more money by finding a more affordable homeowner's insurance company that offers you the coverage you need?
For more information on homeowner's insurance and what coverage options will be best for your situation, don't hesitate to contact the experts at Panorama today.