How home insurance rates affect your mortgage payment
Higher home insurance rates can contribute to higher mortgage payments. When you take out a mortgage, your lender usually requires you to have home insurance to protect your investment. Your monthly mortgage payment also includes property taxes and home insurance paid through escrow.
Escrow payments can go up or down each year, depending on changes in insurance and property tax. If home insurance rates increase, your monthly mortgage payment will rise to account for the cost. This is exactly what’s happening to homeowners around the U.S. as insurance premiums continue to climb due to factors like climate change, rising property values and increased litigation.
Which states have seen the biggest home insurance hikes?
Currently, the national average for home insurance is $2,377 a year. But some states have experienced greater price increases than others.
According to Insurify data, these are the top 10:| State | Projected change in 2024 | Projected annual rate |
|---|---|---|
| Louisiana | 23% | $7,809 |
| Maine | 19% | $1,571 |
| Michigan | 14% | $2,095 |
| Utah | 13% | $1,541 |
| Montana | 12% | $1,997 |
| South Carolina | 11% | $3,410 |
| North Carolina | 10% | $2,327 |
| Illinois | 10% | $2,245 |
| Connecticut | 9% | $1,927 |
| Nevada | 9% | $1,336 |
Thinking about buying a house in a state with rising insurance rates? Let's explore solutions.
Helpful ways to lower your home insurance costs
Insurance companies set policy rates based on how likely they think it’ll be that you file a claim. They consider things like past claims, your neighborhood and the condition of your house. To make sure you’re not overpaying, it can pay to shop around.
You can also:| Strategy | How it works | Potential savings |
|---|---|---|
| Raise your deductible | Opt for a higher deductible in exchange for lower premiums—as long as you can cover it if you file a claim. | Up to 25%* |
| Improve home security | Install security systems, deadbolts and smoke detectors to reduce risk and potentially lower your premium. | From 15-20%* |
| Look for discounts | Ask about discounts for being retired or being a member of a professional association. | Up to 10%* |
| Upgrade your roof | A newer, more durable roof can qualify for discounts. | From 5-35% |
| Bundle policies | Combine your home insurance with other policies, such as auto or life insurance, for potential discounts. | From 5-15%* |
| House-hunt strategically | A home with newer plumbing/heating or located close to a fire hydrant could be cheaper to insure. | From 5-15%* |
It’s also a good idea to review your policy regularly since your home insurance needs can change over time. For example, if you add a home extension or a pool, you might need to increase your coverage. If you make major improvements to your home, like upgrading your roof, you may qualify for new discounts.
What goes into your monthly mortgage payment?
A monthly mortgage payment can be broken down into several components:
- Principal: The original amount you borrowed to purchase your home.
- Interest: The cost of borrowing your mortgage.
- Property taxes: Taxes levied on your property by your local government.
- Home insurance: Insurance that protects your home and belongings from damage or loss.
- Private mortgage insurance (PMI): Required on private loans if you put down less than 20 percent.
- Mortgage insurance premium (MIP): Required for certain FHA loans.
- Escrow: A holding account where your lender collects funds to pay property taxes and home insurance on your behalf.
Put together, your loan’s principal, interest, taxes and insurance are called PITI. Because property taxes and insurance premiums can fluctuate, it’s not unusual for a monthly mortgage payment to change over the life of the loan.
Use a mortgage calculator to estimate insurance costs
Along with estimating your monthly mortgage payment, a mortgage calculator with extra payments may help you better predict your insurance costs. This can give you a more accurate picture of what you’ll pay each month when buying a house.
Here are several free calculators to choose from:
- Mortgage payment calculator: Using this mortgage calculator with insurance and taxes, you can gauge how much principal and interest (P&I), property tax, home insurance and PMI you may pay each month.
- Mortgage affordability calculator: Curious how much mortgage you might pre-qualify for? Crunch the numbers using an extra payment mortgage calculator to find out an estimated monthly payment, broken down into P&I, property tax, home insurance and PMI.
- Closing cost calculator: This calculator can give you more insight into how fees, points, home insurance and property tax affect your total closing costs. A lender typically collects three months of home insurance and property tax at closing to establish your escrow account.
Refinancing to secure better terms or a lower interest rate** and removing PMI can help decrease your monthly mortgage payment. You can request removal of PMI once your mortgage principal balance reaches 80 percent of your home’s purchase price. PMI will automatically be removed once your balance reaches 78 percent of your home’s original price.
Need to make your monthly payment more manageable?
You may have options. Talking with your local Guild loan officer is a great place to start.
*Source: 12 Ways to Lower Your Homeowners Insurance Costs | III
**By refinancing an existing loan, total finance charges may be higher over the life of the loan.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.