If you’re a homeowner, paying your mortgage monthly is a priority. But what happens if your home is destroyed – if a hurricane, tornado, fire, or some other disaster destroys the structure to the nails? Here, we’ll tell you what you can count on and whether or not you really have to keep paying off your mortgage.
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The answer is yes
Yes, you must continue to pay your mortgage every month, even if there is nothing left of your home. If you want to get away from it all, resist this temptation. Leaving a destroyed home will affect your credit score in the same way as leaving a perfectly functional home.
The strength of insurance
At the cost homeowners insurancebut this cover is your best friend after a disaster. Mortgage companies insist that people have homeowner insurance for a good reason: they want to protect their investment. Requiring homeowners to have at least sufficient insurance to rebuild benefits the mortgage company. After all, your home is the collateral that secures your mortgage. But the right insurance also benefits homeowners.
It’ll be enough?
While it may seem like the most boring way to spend 10 minutes in the world, call your insurance agent. Find out how much your home is insured. Nearly 60% of US homes are underinsured by 18%, according to Marshall & Swift / Boeckh. In other words, if these people lose their homes, they will have to pay a significant amount to rebuild them.
Let’s say a house burns down and costs $ 250,000 to rebuild. A homeowner who is 18% underinsured will have to shell out over $ 45,000 to get the job done. If they have no funds hidden in savings accountthey might have to borrow.
Replacement cost coverage
If the home is destroyed, the owner’s insurance policy must cover the costs of staying elsewhere while the home is being rebuilt. However, without proper coverage, a homeowner can be hooked on unplanned expenses.
If you are concerned that you may not have enough money to rebuild your home after insurance pays its share, replacement cost value (RCV) can make your life easier. Although the premium for RCV costs more than standard homeowner insurance (the amount depends on the insurance company), RCV covers all the costs of repairing or replacing the entire home.
What’s more, RCV ensures that the house is restored as new. Let’s say the home has unique features such as intricately patterned parquet floors, upgraded HVAC, and soundproofed recording room. Standard coverage is unlikely to cover the additional costs associated with installing these enhancements, but RCV will.
Back to your agent
When talking with your insurance agent, be sure to ask about any potential gaps in your insurance coverage. For example, what happens if a flood sweeps away a home? A standard policy is unlikely to cover a flood, so find out how much additional coverage will cost.
What about earthquake lighting? It is tempting to drop earthquake insurance because the deductible is very high (usually 10% to 20% of the coverage limit). But suppose the homeowner’s deductible is 10% and it costs $ 300,000 to rebuild a home after an earthquake. This means that their share of the cost will be $ 30,000 (300,000 x 0.10 = $ 30,000). While $ 30,000 is a lot of money, this homeowner will still have a lot of money by paying a deductible instead of losing their property entirely.
A quick note on earthquake insurance: Earthquakes can happen anywhere. The strongest earthquake in 48 states occurred in the Missouri area. According to the US Geological Survey, 42 out of 50 states have a reasonable chance of surviving an earthquake. Those who live in states where earthquakes are rare may find it relatively inexpensive to include earthquake coverage in their homeowners’ policies.
Your first call after a disaster should be to your insurance company. Your second should be yours mortgage lender… Not only will your lender want to know that his collateral has been destroyed, but he will probably want to help. For example, if you have a home business and the loss of your home prevents you from making a mortgage payment, your lender may suggest patience… While they do not have a legal obligation to help, most lenders will do so because it is a much better option than a foreclosure transfer.
Nobody particularly likes to pay premiums, but most would agree that knowing they are insured helps them sleep at night.