Tag: home equity

Why insurance is so expensive now.

The insurance industry has experienced significant changes over recent years, with homeowner’s and auto insurance rates increasing rapidly. The reasons behind these trends are numerous, involving a combination of economic, environmental, and market-driven factors.

Homeowner’s insurance on the rise

Homeowner’s insurance rates have risen notably, driven by several unrelated critical factors:

Rising Rebuilding and Replacement Costs: Between 2019 and 2022, the costs associated with rebuilding and replacing homes climbed by 55%¹. This increase is a principal driver behind higher premiums as insurers recalibrate to cover these escalated costs.
Extreme Weather Impacts: A rise in natural disasters, including severe storms and wildfires, has heavily impacted the insurance sector². The increase in these catastrophic events have lead to more large claims, driving up costs for insurers. Costs which, in turn, get passed on to homeowners.
Market Pressures and Area Exits: Worsening financial performance has caused property insurance market to experience significant strains, which are partly due to economic inflation and changes in exposures³. These pressures have resulted higher premiums and, in some cases, insurers exiting certain markets (no longer writing polices in certain regions) or reducing their policy offerings⁴.

Accelerating auto insurance premiums

Auto insurance has also experienced rate increases, with overlapping and unique factors to blame:

Rising Inflation and Repair Costs: Similar to homeowners insurance, auto insurance is impacted by inflation. The cost of repairs, labor, and parts has increased, leading insurers to raise premiums to cover these higher expenses⁵.
More Natural Disasters: Auto insurance companies were also impacted by natural disasters, which can lead to a higher volume of claims. Vehicles damaged by storms, floods, or fires contribute to the overall risk insurers need to manage⁵.
More Technological Complexity: Modern vehicles come equipped with advanced technology, making repairs more expensive. This novel complexity adds to the overall cost insurers need to cover, contributing to premium increases.

Common themes and relationships in insurance

Analyzing the causes behind the steep rise in both homeowners and auto insurance rates reveals common themes:

Impact of Weather Extremes: Both sectors are significantly affected by climate change, leading to an increase in natural disaster-related claims. This trend underscores the growing importance of environmental factors in insurance pricing.
Economic Factors: Inflation plays a crucial role in both contexts, impacting the cost of repairs, replacements, and labor. Economic conditions directly influence insurance rates, reflecting broader market dynamics.
Technological and Material Costs: Just as the cost of modern vehicle technology impacts auto insurance, the rising costs of building materials and construction technology affect homeowners insurance. These factors contribute to the overall increase in premiums.

Looking ahead

Understanding these trends is critical for consumers looking to navigate the changing insurance landscape effectively. While external factors like climate change and inflation may be beyond individual control, there are steps consumers can take to mitigate the impact on their insurance rates. Regularly reviewing policies, improving property resilience, and shopping various insurance providers can help secure more favorable terms.

Given the complex interplay of factors driving insurance rates up, it’s evident that both homeowners and auto insurance sectors are navigating through a period of adjustment. Awareness and proactive management of insurance policies become even more crucial to adapt to these changes.

What’s a future homeowner to do?

It’s no secret that inflation has taken a bite out of the average worker’s spending power. The general cost of living is, on average, higher than it used to be. See the chart below of the latest 5-year trend of the Consumer Price Index in the United States using data from the US Bureau of Labor Statistics:

United States Consumer Price Index: Last 5 Years

source: tradingeconomics.com

If you currently rent your home, you may also have noticed that the average cost to rent has risen as well. Below is a chart of Rent Inflation for the past 5 years, again, using data from the US Bureau of Labor Statistics:

United States Rent Inflation: Last 5 Years

source: tradingeconomics.com

If you are feeling the pinch of inflation and rent increases, you may be tempted to believe that the American Dream of homeownership is slipping away. Headlines have emphasized the increase in mortgage rates, and it’s no secret that demand has buttressed home prices, as indicated in the chart below using data from the Federal Housing Finance Agency (FHFA):

United States FHFA House Price Index: Last 5 Years

source: tradingeconomics.com

What if you could do something now to help prepare for a more expensive future? What if homeownership is more than just a foundational part of the American Dream, but a tool to leverage a better financial future for family, or just for yourself?

Fight rent increases: Fire your landlord. (and become your own)

Maybe you love your landlord. Maybe you really dislike your landlord. Either way, the odds are good that your rent is higher than it was 2 years ago (Remember the rent inflation chart above?).

You know what isn’t higher? The principle and interest monthly payment for a mortgage that started 2 years ago. That’s the magic of a mortgage loan: the monthly payment doesn’t change for the life of the loan. Sure, this doesn’t account for insurance rates, taxes, or HOA fees, but every dollar you pay on the principle is equity in your home that you now own, and your lender doesn’t. You can’t say that about rent.

Your home as a financial asset

As the property you own increases in value, you own every bit of the new value, and your monthly payment (principle and interest) stays the same. Maybe you have a growing family, or you want a bigger garage, office, space to entertain, or whatever you have your heart set on. If you want to get a bigger house, you can take the equity of your existing house, and use it to help pay for your next house.

Over time, as your equity grows (and your monthly principle and interest payment stays the same), your net worth and economic resilience grows with it. In fact, if you want an even lower monthly payment, you may be eligible to refinance your remaining debt into a new mortgage, if rates are favorable. You could also use a portion of the equity in your home for other expenses. (These are referring to various loan products, and the best product for your situation may not be the same the best option for someone else.) The point is, becoming a homeowner gives you options that are not available otherwise.

Know your options

If you firmly believe that homeownership is out of reach, we encourage you to explore your options anyway. There are a variety of programs, and a variety of properties that can work together to help you start building home equity. If qualification is a problem, there are steps you can take to work towards qualification.

The point is, don’t let your own limiting beliefs hold you back. Our team of loan experts thrive on helping buyers overcome challenges to help you fire your landlord, become a homeowner, fight back against rising rents, and start building equity.

If you are ready to get started, fill out our no-obligation form, and your mortgage loan expert will contact you to help you determine your best path forward.

Apply Now

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After all, Benchmark brings you home.

¹ CNN, 2023
² CNBC, 2024
³ Financial Research Government, 2023
⁴ Money.com
⁵ NPR, 2024

Is a HELOC a good financial choice?

by I Am Benchmark

A Home Equity Line of Credit (HELOC) is an easy way to borrow money using your home’s value as collateral. Let’s look into how a HELOC works and whether this option is right for you.

A home equity line of credit (HELOC) works much like a credit card. With money drawn from a HELOC, you can pay for things like home remodeling/repair fees, credit card debts, or even save it for rainy day funds.
A HELOC’s interest rates can be significantly lower than a credit cards

How Much Can You Borrow with a HELOC?

The first step in deciding if a HELOC is right for you is knowing whether you have enough home equity to qualify. This will also determine the amount of the credit line that you’re eligible for.

Your home equity is the difference between your home’s appraised value and your mortgage balance (assuming you have an existing mortgage).

Example: HELOC for a home worth $500,000

if your home is worth $500,000 and you have 50% equity, you may be able to borrow as much as $150,000 in a Home Equity Line of Credit (HELOC).

Let’s break that down.

If your home is worth $500,000 and you owe $250,000, your equity is 50%.

$500,000 – $250,000 = $250,000
- If your home is worth $500,000 and you don’t have a mortgage, your equity is 100% ($500,000 – 0 = $500,000).
To estimate your possible HELOC credit limit, calculate your combined loan-to-value ratio (CLTV ratio, or your line of credit relative to your home equity). Most HELOC lenders allow a CLTV of at least 80% on your main home, sometimes higher.

To estimate, multiply your home’s appraisal value by 0.8. This is approximately how much money lenders may let you borrow against your home. With a home value of $500,000, it comes to $400,000.

$500,000 x 0.80 = $400,000
Then, subtract the amount you still owe on your existing home loan. For our example, let’s estimate that to be $250,000.

$400,000 – $250,000 = $150,000 credit limit for our example HELOC.

So, How Does a HELOC Work?

A HELOC is a revolving line of credit with a variable interest rate, like a credit card. It also has a fixed term and a defined repayment period, like a mortgage.

A credit card’s credit limit is based on your household income and credit score. You can spend as much, up to the credit limit, or as little as you want in each billing cycle. When you get your statement, you have to make at least the minimum monthly payment, but you can choose to repay the entire statement balance if you don’t want to accrue interest. When your payment is processed, your available credit increases by the amount of your payment that went toward the balance. If a portion of your payment is going to interest, this portion will not contribute to your available credit.

A HELOC is similar, but your credit limit is also based on how much equity you have in your home. Additionally, a HELOC has two periods:

First, there is a draw period, typically several years, during which you can borrow up to your credit limit and make interest-only payments.
Then, there is a repayment period, generally several more years, when you can no longer borrow money but must repay your outstanding balance with interest.

What are the steps to get a HELOC?

Apply with a Benchmark online, in person, or over the phone.
You will be asked to submit supporting documents including photo ID, paystubs, tax returns, proof of assets, bank statements, current mortgage details, and other financial information
If approved, Benchmark will issue an initial, conditional approval
Benchmark will order and schedule an appraisal of your home.
Our underwriters will check your application and make sure everything’s in order
Your final approval will be sent by your underwriter
Close the loan and receive funding. Since a HELOC is not a lump sum loan, you’ll receive a special account or card allowing you to access your HELOC as needed

What else should you know to decide if a HELOC might be a good choice for you?

We recognize that not every loan product is right for everyone. There are a few more things you should know about HELOCs.

Like most credit, the better your credit score and credit history, the higher the chances are that you will be approved.
A HELOC is a very low cost way to borrow money, and can be an attractive option if you do not have a substantial amount in savings, and are in need due to a crisis or economic downturn.
You can use a HELOC to pay for almost anything, and funds are easily accessible once open.
If you feel burdened with credit card debt, and you’re looking for a way to save on interest, a HELOC could be a great tool.

Curious to learn more?

At Benchmark, we are committed to listening to your goals and setting you up for future success. To learn more, Contact your local Benchmark branch. Contact us today for personalized information. Call me yourself or request a call from me. WeI would be honored to provide you with our famous excellent service.

Benchmark brings you home.

Top 5 Financial Reasons To Buy Now

by I Am Benchmark

Increasing Prices

Over the last year, home prices have increased by 7.1%, according to CoreLogic’s latest Home Price Index (HPI) report. Over the next year, the HPI also predicts that prices will continue to rise at a rate of 4.9%. Clearly, we are long past the dip in home pricing. Home values are expected to continue to appreciate for years to come. In short, waiting no longer makes sense.

Anticipated Rising Mortgage Interest Rates

The Primary Mortgage Market Survey published by Freddie Mac shows that interest rates for a 30-year mortgage have drifted around 4%. Experts predict that rates will rise over the next year. The Mortgage Bankers Association, Fannie Mae, Freddie Mac, and the National Association of Realtors project that rates will increase by this time next year. An increase in rates is likely to cause your potential monthly mortgage payment to rise if you plan buy your next home.

Either Pay Yourself or Pay Your Landlord

Some renters who are uncomfortable with the obligation of a mortgage have not yet purchased a home. The reality is that unless you are living rent-free, every rent payment you make is paying your landlord’s mortgage. As a homeowner, your mortgage payment can be considered ‘forced savings’ in that it builds equity in your home that you can use to your advantage later in life. As long as you continue to rent, you will continue to build equity… for your landlord. When you buy a home, the advantage in housing payments is yours. For more on this, read Millionaire Tells Millennials To Buy A Home, published in January.

Rent Control

A fixed rate mortgage payment will not increase over the life of the loan. Rent, on the other hand, will likely continue its historic path. See the graph above from the U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: Rent of primary residence, retrieved from FRED, Federal Reserve Bank of St. Louis: https://fred.stlouisfed.org/series/CUUR0000SEHA.

In short, buying a home can help you take control of your housing costs.

It Might Be The Right Time To Act

The cost of a home is determined by (1)the price of the home, and (2)the current mortgage rate. It appears that both are on the rise. But what if they stagnated? Would you wait? Consider the real reason you are buying and decide if you think it is worth waiting.

Whether you want to have a great place for your children to grow up, the choice to keep pets and room for them to roam, you want your family to be safer, or you just want to have control over renovations, now may be the time to buy. If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could result in significant savings.

If you decide that you are ready to act, find your loan officer and applyapply now.

Why Rising Home Prices Are Good News!

by I Am Benchmark

Most agree that home prices have risen, and are still on the rise. We have written about why this is not like the housing bubble that we saw nearly ten years ago. In some areas, there are not enough homes for sale to meet the demands of home buyers, and prices are driven up organically. see – Low Housing Inventory Driving Values Up – Benchmark

The Good News

While this can make things more difficult for some home buyers, there is a bright side. The average household in the US gained over $11,000 in equity in the last year owing, at least in part, to rising home values, according to CoreLogic’s most recent US Economic Outlook.

This map is originally provided by CoreLogic’s report. This shows the average, by state, of home equity gained per homeowner from June 2015 to June 2016. The national average equity gain per homeowner was $11,152.

To address any fears that this nationwide appreciation harkens back to the bubble burst a decade ago, please recognize that homeowners are investing this new equity in their homes and in themselves rather than in speculation or assets subject to standard depreciation.

What does this mean? This means that it is probably helping families to pay for college, start small businesses, pay off their mortgage faster, or moving to a home more suited to their dreams or lifestyle.

What Does The Future Hold?

CoreLogic’s predictions are that home prices will rise another 5% by this date in 2017. Would you believe that it is still cheaper to buy than to rent? Stay tuned for our next post!

Is More Housing Inventory On The Horizon?

by I Am Benchmark

There has been a lot of talk about the rising value of houses in recent years. While some have expressed concern over another 2008 style housing bubble forming, we have dispelled this notion. While economics is a bit more complicated, most moves are the direct result of what you may have learned in school: supply and demand.

The Buyers are Vying

While no-one doubts that the current economy is sluggish (with varying opinions as to why), the demand for single family homes has continually increased. To corroborate that this is not just a timely fad, surveys show that 80%+ still considers home ownership an essential part of the American Dream. (something that we have talked about before). A recent Gallup survey indicates that real estate is considered to be the best long-term investment.

The Owners are Holding

For several years, homeowners may not have been able to sell. Reasons were numerous, including issues such as family finances and lack of home equity. (which isn’t surprising, in the wake of a housing bubble collapse) As a result of this “holding”, the supply of homes is low, as is to be expected. With the steady increase in home values, however, there is reason to believe that incrased motivation to sell will possibly increase the supply. Do families want to sell?

Short of asking, we can look at how long homes have been held, on average, over time.

Forbes

As the economy continues to improve, even if slowly, and more families approach possession of significant equity (20% or more), we expect to see more homes on the market. As the supply increase reduces the gap with existing demand, home price increases may begin to slow.

The Takeaway

If you are one of those who have been holding onto your current home over the last few years, now may be a good time to cash in (sell), and find the home of your dreams.