Do I need to tell my insurance company that my mortgage company has changed?  

For homeowners who are planning on going through a refinance or their home loan has recently been sold to another mortgage company, do you need to notify your home insurance company that your mortgage has changed? The answer is absolutely! A common myth about home insurance is that it is hard to make a switch from one home insurance provider to another. Many homeowners ask the question, “If I switch my home insurance, will that mess up anything with my mortgage company?” But what happens when it’s the other way around?  

If you’re like most American homeowners, you probably make monthly escrow payments to pay off your mortgage. Unless you were able to make a down payment of at least 10-20% based on your loan type, your mortgage company typically requires you to set up an escrow account when you purchase your new house. You may have heard of the term “escrow account” before, but what actually goes into an escrow account and why is it so important? 

What is an escrow account? 

Your escrow account is designed to make your life as a homeowner much easier. The purpose of your monthly escrow payments is two-fold: part of that monthly payment goes to paying down the principal and interest on your loan, while the other part goes toward paying for your annual property taxes and home insurance premiums. Your mortgage company funds the initial lump-sum payment for home insurance and property taxes for the year, and your escrow payments reimburse them for footing the bill. Rather than homeowners having to juggle multiple due dates and payments each month, your escrow payment serves as one easy payment to cover all the above. This also takes the burden off of homeowners to come up with large lump-sum payments to cover their annual property taxes and home insurance premiums since it breaks it down into smaller manageable monthly payments distributed over the course of the year.  
Since your mortgage company plays an important role as the “moneybags” for your home insurance premium each year, it’s important to communicate any changes in your mortgage company to your home insurance provider so that they can make sure your escrow account is still properly set up. Give your agent a quick call so they can update your policy accordingly. If you ever have a change in mortgage companies, they will typically send you a correspondence that includes their preferred mortgagee clause, which is industry jargon for “preferred billing address,” and a new loan number that serves as the unique identifier for your home loan in their system. If you communicate those two things to your insurance agent, they can easily make that update to your policy and work with your new mortgage company to ensure your escrow account is still set up properly.  

Do I need new insurance for my refinance? 

As mortgage rates go down, hundreds of thousands of Americans leap at the chance to take advantage of low interest rates. Capitalizing on these low interest rates has allowed countless homeowners to save thousands over the course of their 15 to 30-year home loans. While refinancing is a great way for homeowners to save an incredible amount of money, there’s another way for homeowners to maximize their annual savings that many don’t take advantage of. Their home insurance. 

As an insurance agent, I love partnering with loan officers and other experts in the home-buying process to help their clients find the perfect fit for their family. What I found interesting, though, was that my business partners would consistently refer over clients purchasing brand new homes, but they would rarely refer their clients going through a refinance to me. When I asked them about it, they said, “I didn’t know that you could help out with that!”

Homeowner’s going through a refinance should ask the question, “Do I need new home insurance for my refinance?” The main purpose of a client going through a refinance is to save money. Because you already have home insurance set up to protect your home before you refinance your home, your loan officer may not think to encourage you to shop around to see if you’re still in the best spot for your home insurance. From my experience, homeowners unknowingly stick with whatever home insurance company they got when first purchasing their property without shopping around every few years to see if the grass may be greener elsewhere. While their loyalty to their home insurance company is commendable, I commonly saw that their home insurance company was not always loyal to them in return, in respect to annual savings. 

Homeowners tend to stay with one insurance company for a number of years – upwards of decades in some cases. While some companies offer loyalty discounts that can be enticing, it may not outweigh the fact that their product just isn’t competitive. Home insurance providers can ebb and flow in their competitiveness within the market, similar to the housing market itself. Depending on their growth strategy or if they’ve recently had to pay out on a large number of claims within the last year, home insurance companies may see widespread premium increases in certain areas. If this is a consistent trend over a number of years, homeowners may unknowingly be charged an arm and a leg for the same product that could be drastically cheaper through another carrier. 

Why shop my insurance while refinancing? 

In one of my more memorable experiences, I was helping a client that was going through a refinance, and they had been with the same home insurance provider for 22 years. When crunching the numbers to see what their new monthly escrow payment would look like after their refinance, one of my business partners noticed that this client was paying an astronomical amount for their home insurance. This was a fairly standard home in this area, had a new roof, no extensive claims history, and the applicant had a strong financial background. Nothing in particular stood out to him as to why it would be that expensive, so he urged the client to give me a call so that I could look into their insurance options. 

Reluctantly, the client reached out to me for quotes and even told me during the first part of our call that they were fiercely loyal to their insurance company, and they probably weren’t going to switch. After quoting their property through my carriers, I was able to find an option with dramatically better coverage for almost $2,000 less each year. Blown away by the total amount of savings, my client said “That’s enough to go on a vacation with my grandchildren each year!” Rather than spending extra money on less coverage, the client was able to re-purpose those savings into something that meant the world to her. In customizing the coverage with the client, I explained to them that it’s always a good idea to shop your insurance every few years to make sure you’re still in a good spot. By no means was the company she was with for 22 years a bad company, but I see countless homeowners fall into the same trap of blindly sticking to the same insurance company for years. 

If you’re planning on going through a refinance, you are not required to get a brand new home insurance policy. As long as your property has sufficient coverage in place, your home will be protected, and your lender won’t care if it’s a new policy or one you’ve had for years. In order to maximize the amount of savings you can get, I highly recommend that each client looking to refinance their home look into shopping their home insurance as well. Don’t get caught in the same trap as so many other homeowners!  

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