3 Ways Paying Off Your Mortgage Early Is Advantageous To Your Home Insurance
Buying a new home comes with a number of considerations that you will need to address prior to filling out the final paperwork. One of the most important to your family’s budget will be the length of time you plan to take in paying back the mortgage loan. The two most common terms are the 15-year mortgage and a 30-year mortgage. With the 15-year mortgage, your payment will be higher, but you will enjoy the benefit of paying off the principal amount early. The 30-year mortgage affords you the benefit of a lower payment but a longer period of time for the final repayment. You also pay much more in interest over the three decades.
It’s this last point – the amount of interest – that makes paying off your mortgage early such an attractive proposition. But there are also home insurance advantages that will make you want to speed up the process as well.
One: Increasing Coverage
Increasing the amount of home insurance coverage is a detail that many homeowners overlook to their detriment. The cost to rebuild a home in the same specifications as it was originally purchased will be more than the current value of the home. That is because building materials are always on the rise as is the cost of labor. In other words, your $200,000 home that is 2000 ft.² may cost $125 per square foot to rebuild. At this rate, should your home be burned to the ground or be victimized by tornado season, there would be a $50,000 gap in your coverage, resulting in less house than you had before. If your budget is a bit tight, you can play with the coverage amounts that you carry on your home insurance, thanks to the added funds that paying off your mortgage early will provide.
Two: Paying Off Debt
What does insurance and paying off your mortgage early have to do with paying off your existing debts? The act of eliminating your mortgage debt early will do a couple of things that work to your advantage. First of all, by paying more than the minimum payment on your monthly mortgage, you get used to allocating more funds than needed to that debt. Once the mortgage is removed, you have even more money to apply to other debts. With less to worry about, your family needs less of a safety net to survive in case anything should ever happen to you. Life insurance customers, if you have a policy that builds cash value, then the closer that you get to maturity, the more of that money can go towards other investments or as a financial cushion instead of a death benefit.
Three: Lowering Home Insurance Premiums For The Life Of Home Ownership
You read that right. Many insurance companies, particularly the major players, like to reward early repayment of a home mortgage by lowering home insurance premiums. In the eyes of the company itself, you are less of a risk factor when you own the house outright because it shows responsible money management. For the same reason that your credit rating often plays a factor in your auto insurance premiums, home insurance remains react to individuals who are financially trustworthy.
While there are a number of reasons why you should consider paying off your mortgage early that we have not mentioned above, the three areas presented offer a detailed look at how early repayment positively affects your insurance needs. If you have discretionary income that allows extra payments without it affecting your quality of life in a negative way, you should seriously consider applying more money to your principal each month or making one extra payment every year in addition to the 12 monthly payments.