Why Your Homeowner’s Insurance Premium May Increase Year to Year

Many homeowners expect their monthly mortgage payment to stay the same, especially with a fixed-rate loan. After all, the principal and interest don’t change. So it can be frustrating or confusing when your total payment increases from one year to the next.

In most cases, the change has nothing to do with your mortgage. Instead, it’s tied to your homeowner’s insurance premium, which can fluctuate over time based on factors outside your control.

Understanding why insurance premiums increase, and how those changes affect your monthly payment, can help you plan ahead and avoid surprises. Below, we break down what a homeowner’s insurance premium is, why it may change, and what it means for your escrow account.

What is a Homeowner’s Insurance Premium?

Your homeowner’s insurance premium is the amount you pay for coverage that protects your home and personal belongings against events like fire, theft, or storm damage. While this coverage is essential for protecting your investment, premiums aren’t fixed, and they can change even if you’ve never filed a claim.

Common Reasons Insurance Premiums Increase

Insurance rates are influenced by factors beyond your individual policy. Some of the most common reasons premiums rise include:

Inflation and Construction Costs

As the cost of building materials and labor increases, it becomes more expensive to repair or rebuild homes. Insurance carriers adjust premiums to reflect today’s replacement costs.

Regional Risk Changes

Shifts in weather patterns, such as more frequent storms, flooding, or wildfires, can increase overall risk in a region. When that happens, insurers may raise rates across an entire area.

Community Claims History

Even if you haven’t filed a claim, the claims activity in your neighborhood or region can impact premiums for everyone insured there.

How Insurance Changes Affect Your Escrow Account

Many borrowers with JustChoice Lending use an escrow account, which collects a portion of your monthly mortgage payment to cover property taxes and homeowner’s insurance.

When your insurance premium increases, it can affect your escrow in two ways:

• Escrow Shortage: If the insurance bill is higher than expected, there may not be enough funds in your escrow account to cover it.
• Escrow Recalculation: Your monthly payment may be adjusted to account for the higher premium and to replenish the escrow shortage from the prior year.

These adjustments are common and don’t reflect a change in your loan terms, just an update to your actual insurance costs.

Homeowner’s Insurance vs. Mortgage Insurance

It’s also important to distinguish homeowner’s insurance from mortgage insurance. Here’s the difference:

• Homeowner’s insurance protects your home and is typically required for the life of the loan.
• Mortgage insurance protects the lender and is often required on FHA loans or conventional loans with less than 20% down. On conventional loans, PMI may be removed once sufficient equity is built.

What Homeowners Can Review Each Year

Reviewing your insurance policy annually can help you stay informed and prepared. Here’s what to do each year:

• Compare Carriers: You’re free to shop for coverage. Another insurer may offer similar protection at a more competitive rate.
• Review Deductibles: Adjusting your deductible may lower your premium, depending on your financial comfort level.
• Confirm Coverage Limits: Make sure your policy reflects current rebuilding costs—without paying for coverage you no longer need.

A Trusted Partner in Your Homeownership Journey

At JustChoice Lending, our non-commission-based loan officers are here to support you, not sell to you. If you have questions about your escrow account, your monthly payment, or your home loan options, we’re ready to help.

Contact Us or Apply Now to take the next step.