How Homeowners Insurance Affects Affordability

Florida is known for abundant sunshine, clean air, sandy beaches and warm year-round temps. Whether right or wrong, hurricanes also come to mind. The latter can greatly affect your monthly mortgage payment because an older home can cost you much more to insure.

Building codes have changed significantly since 1992. Today, residential homes are built to withstand higher wind velocity which equates to lower insurance cost. The newer the home the lower the cost. In our area of Sarasota and Charlotte Counties on Florida's west coast, the wind velocity rating changed in 2003 from 110 mph to 130 mph.

Other changes took place in mid-2007 which required all windows to be covered with storm panels or made with impact glass.

How does this affect hazard insurance cost?

The determination of risk is best left to insurance experts but as a general rule homes built prior to 1996 may fall into what's known here as the "Citizens Pool", the insurer of last resort if other underwriters feel the risk is too high to insure.

How does insurance cost affect affordability?

With interest rates at historic lows increases purchasing power. The lower the interest the more home a person can afford. The same is true for insurance; the cheaper it is, the more home you can afford. In the example below, the insurance savings on a newer home versus a home built prior to 1992 can increase your purchase price as much as $25,000.

4.5% annual mortgage interest on a $150,000 home financed for 30 years, the P & I payment is about $760. Add $125 per month for insurance (average for a newer $150,000 home.) If your insurance was double, or $3000 per year, the extra $125 per month lowers your purchasing power by approximately $25,000.

4.5% interest = $5.06 per thousand borrowed.
$5.06 x 25 = $126.50.

To have the same house payment if insurance costs $3000 per year ($250 x 12 = $3000) you would need to purchase a home for $125,000.

Newer home built after 2002:
Price: $150,000 = $760.00 per month
Insurance $125 per month (approx)
Total monthly payment= $885*

Older home:
Price: $125,000 = $633 per month
Insurance $250 per month (approx)
Total monthly payment = $883*

* Does not include property taxes.

The monthly insurance premiums above are approximate and can vary greatly. Speak with a licensed insurance agent for a quote on a particular home.

Other factors that may increase or decrease your insurance cost include proximity to the coast and construction materials.

There are ways to decrease insurance premiums on an older home. One effective and affordable way is to install storm panels. You should have a licensed inspector perform a wind mitigation inspection to determine what changes could lower your insurance cost. For more information on the areas we serve,  please visit FLSunTeam.com