Category Archives: Mortgage Information

Home Insurance Deductibles – New Twists

Posted on May 31, 2016 | Leave a comment

The definition of deductible used to be simple: It was the dollar amount, stated in your homeowners insurance policy, that you would pay to repair property damage before your insurance coverage would start to kick in.

Do you know the value of your home? Do you have enough insurance? Contact the appraisers at www.scappraisals.com for your home value questions.

In other words, if you had a $1,000 deductible and a fire caused $5,000 worth of damage to your kitchen, you’d pay the first $1,000 to fix it, and your insurance company would pay the remaining $4,000.

But insurers recently have started offering different types of deductibles as a way to keep premiums lower. So an element of homeowners insurance that was relatively straightforward has grown increasingly complicated.

How are deductibles changing?

Three major trends affect deductibles right now. They are:

Higher deductibles. The amount for “flat dollar-value” deductibles has been creeping up in the past few years; where a $250 amount used to be relatively common, many insurance companies now encourage their customers to take on $1,000 or more worth of risk. In fact, some insurers don’t even offer the lower deductibles anymore. They aren’t the only ones driving this trend: During the recession of 2007–2009 and the subsequent recovery period, many homeowners chose higher deductibles to keep their monthly insurance payments down. Those people often found they were comfortable with the higher risk and kept the higher deductible even after their financial situation improved.

Split deductibles. Insurance companies offer this type of deductible for people who want to take on higher risk for certain types of damage and maintain a lower risk level for others. For example, in some regions of the country, insurers will allow you to have one deductible for wind and hail damage, and another for everything else.

Percentage deductibles. Rather than being set at a flat dollar value, the deductible is stated as a percentage, typically 1 or 2 percent of your “dwelling coverage,” or the amount your policy states you’d need to completely rebuild your house (not including replacing the contents). In other words, if your dwelling coverage is $300,000 and your deductible is 1 percent, you’d pay the first $3,000 of any repair. Percentage deductibles are often higher than flat dollar-value deductibles, but they also typically come with a lower premium.

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Low-down-payment loan? If your FICO score is good you’re in luck.

Posted on May 14, 2016 | Leave a comment

If you’re planning to buy a home with a low down payment, you need to be aware of some important but virtually unpublicized price changes underway in the mortgage market.

If you’ve got good but not great credit, such as a FICO score in the mid to upper 600s, you’re going to get hit with higher fees on a conventional (non-government) loan with a low down payment. Count on it. On the other hand, if you’re part of the credit elite — your FICO score is 760 or higher — congratulations: You’re in line for an unexpected discount on fees, despite making a tiny down payment.

What’s going on? Put simply, the mortgage insurance premiums on loans eligible for sale to giant investors Fannie Mae and Freddie Mac underwent a shake-up this month. Applicants with lower scores and smaller down payments got whacked.

To illustrate: According to one mortgage insurer’s rate sheet, the buyer of a $400,000 house with a 660 FICO, a 3 percent down payment and a fixed rate of 4 ¹/₈ percent would have paid $2,359 a month in principal, interest and mortgage insurance before the premium changes took effect April 4. Today, the same borrower would be charged $2,495 a month — $136 more a month, $1,632 more a year. But a borrower with a 760 FICO seeking the same size loan with a rate of 3 ⁷/₈ percent would now be charged $162 less per month — $2,002 vs. $2,164 — because of the pricing revisions.

FHA – Borrowers fighting interest overcharges

Posted on May 11, 2016 | Leave a comment

The source of all the controversy: The Federal Housing Administration’s longtime policy of allowing banks to charge homeowners a full month’s worth of interest when they went to pay off their FHA-insured loans — even after they had paid back all the principal they owed.

To illustrate: Say you were preparing to pay off your mortgage balance in full on May 3. Under the government’s policy, lenders were permitted to charge you interest on the paid balance though May 31, collecting it at the closing May 3. It was the equivalent of being charged for a full tank of gas, even though all you pumped was 3 gallons.

The official rationale for the controversial policy was that mortgage bond investors expected full months’ worth of interest payments on FHA loans, not partial payments. Unless borrowers paid off their loans on the first of the month, the lender could charge them interest for the full month. But FHA was alone in its stance on this. Neither of the two giant mortgage players, Fannie Mae and Freddie Mac, forced consumers to make extra interest payments on loans to please Wall Street. Nor did the Department of Veterans Affairs do so on its home mortgages. FHA officials also argued that because of the opportunity lenders have to charge additional interest, they typically quote more favorable interest rates on FHA loans — 0.10 percent to 0.15 percent lower — compared with non-FHA loans.