Most homeowners refinance when they have equity on their home. Equity is the value of your home, value that can appreciate over time, minus what you owe on a mortgage. Refinancing refers to the process of obtaining a new mortgage in order to reduce monthly payments, take cash out of your home for a large purchase, or change from one lending company to another. In the process, your home insurance premium may increase or decrease. You may also decide to change home insurance providers.
When a mortgage is refinanced, the bank or mortgage holder usually requires that the value of the home be completely assessed as if the home were being sold. That means that an agent will look at every aspect of the home to determine its current value, regardless of the stated value that was established when the original mortgage was signed. Any changes in the value of the home will have a direct impact on the amount of home insurance that you pay. For example, if you have made renovations to the home, it may be worth more than it was before, which will make the insurance more expensive. If the neighborhood has deteriorated, however, your home’s value may have gone down and you may end up paying less for home insurance.
Since refinancing involves reassessing the value of your home, you need to contact your home insurance company so that your policy can be updated accordingly.
For properties located in hazard zones, the mortgage holder will require a homeowner’s policy cover any potential hazards, including flooding. FEMA provides hazard map for both flooding and earthquakes that homeowners and appraisers can use to determine whether or not a property is in a hazard zone.
Refinancing offers homeowners an opportunity to shop around for a better home insurance policy rate than you have been paying. Take your time and look into home insurance quotes based on your home’s newly established value and the type of mortgage that you signed during the refinancing process. You may find that you can save a significant amount of money on your home owner’s insurance as well as your refinanced loan.