The Average Cost of Home Insurance

We’ll get straight to the point: The cost of home insurance varies widely, but the average American homeowner pays $1,249 a year in premiums, according to the Insurance Information Institute’s 2018 figures, the most recent available.

(This is based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. It provides all risks coverage (except those specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.)

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Home insurance premiums can vary widely in part because of:

  • Your location
  • Your history of claims
  • Your credit score
  • The age and condition of your home

However, there are ways that homeowners can save money on their insurance costs, which we’ll get into. We’ll also walk through which areas in the U.S. are the cheapest and most expensive, typical coverages and more.

[ Read: Home Insurance Quotes, Explained ]

How much does home insurance cost by state?

As you can see below, the average home insurance premium varies widely by state. As you might expect, weather events figure big in the average annual premium by state, although there are other factors, of course, such as your credit score and the age of the home. The figures in this table come from 2018 data provided by the Insurance Information Institute.

State Rank Average annual premium State Rank Average annual premium State Rank Average annual premium
Ala. 13 $1,409 Ky. 26 $1,152 N.D. 18 $1,293
Alaska 36 $984  La. 1 $1,987 Ohio 44 $874
Ariz. 46 $843 Maine 42 $905 Okla. 4 $1,944
Ark. 12 $1,419 Md. 32 $1,071 Ore. 51 $706
Calif. 31 $1,073 Mass. 10 $1,543 Pa. 40 $943
Colo. 7 $1,616 Mich. 38 $981 R.I. 5 $1,630
Conn. 11 $1,494 Minn. 14 $1,400 S.C. 19 $1,284
Del. 45 $873 Miss. 8 $1,578 S.D. 20 $1,280
D.C. 21 $1,264 Mo. 15 $1,383 Tenn. 23 $1,232
Fla. 2 $1,960 Mont. 22 $1,237 Texas 3 $1,955
Ga. 17 $1,313 Neb. 9 $1,569 Utah 50 $730
Hawaii 27 $1,140 Nev. 48 $776 Vt. 41 $935
Idaho 49 $772 N.H. 36 $984 Va. 34 $1,026
Ill. 28 $1,103 N.J. 24 $1,209 Wash. 43 $881
Ind. 33 $1,030 N.M. 30 $1,075 W.Va. 39 $970
Iowa 35 $987 N.Y. 16 $1,321 Wis. 47 $814
Kansas 6 $1,617 N.C. 28 $1,103 Wy. 25 $1,187

Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides all risks coverage (except those specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.

Most expensive states in home insurance premiums

Below are the most expensive average home insurance premiums by state, according to the Insurance Information Institute’s figures from 2018. Premiums can vary widely within the state, and of course, there are more factors in your premium than the location of your home.

  • Louisiana: $1,987
  • Florida: $1,960
  • Texas: $1,955
  • Oklahoma: $1,944
  • Rhode Island: $1,630

Cheapest states in home insurance premiums

Below are the cheapest average home insurance premiums by state, according to the Insurance Information Institute’s figures from 2018. Premiums can vary widely within each state, and of course, there are more factors in your premium than the location of your home.

  • Wisconsin: $814
  • Nevada: $776
  • Idaho: $772
  • Utah: $730
  • Oregon: $706

What determines the cost of homeowners insurance?

The cost of an individual homeowners insurance policy is determined by a wide range of factors. Some of those factors are within your control, and some of them are not. 

For instance, home insurance can be more expensive in areas with a high risk of flooding or fires than in places where natural disasters are uncommon. Newer homes often cost less to insure than older dwellings — especially those in need of repairs. Insurance companies also look at your personal credit history before covering your home, so people with good credit histories could receive a lower premium than those with poor credit histories.

Every insurance company calculates rates differently. Some carriers place a higher value on credit score and claims history, while others look more closely at the condition and age of the home. Below is a more comprehensive list of the considerations that might determine your homeowners insurance premium.

[ Read: The Best Homeowners Insurance Companies ]

  • State, city and neighborhood: Some states are more prone to wildfires, earthquakes, and hurricanes than others.
  • Location of home: This information is pulled for crime and claim statistics in your home’s area.
  • Construction of the home: Is the home made out of wood, brick, or vinyl siding?
  • Heating system: Is the home heated with an HVAC or wood stove?
  • Security system: Homes with security systems might be less likely to be broken into.
  • Previous claims on the home: If the home has a history of water and electrical issues, then the homeowner may be more likely to file a future claim.
  • Homeowner’s previous claims: If the homeowner has a history with other insurance companies, he or she may be more likely file a claim again in the not-so-distant future.
  • Credit score: People with low credit scores may be more likely to file a claim.
  • Nearest fire station: The distance between your home and the nearest fire station can be a factor.
  • Marital status: Married couples are statistically less likely to file claims with insurance companies.
  • Replacement cost: The cost to replace an older home and bring it up to code can be more expensive than replacing a new home.
  • Pets: Certain animals might be considered a greater risk for liability claims.
  • Outside structures: Things like pools, sheds or greenhouses can also affect your policy rate.

Aside from these factors, the cost of an individual policy can also be determined by which features you chose to include in your coverage. A few of the options that can affect the cost are:

  • Deductible amount
  • Extra coverage add-ons
  • Bundled insurance policies
  • Discounts

[ More: Complete Guide to Home Insurance ]

Types of coverage

There are many different types of homeowners insurance coverage. Some coverages, like dwelling and liability coverage, can come standard with most policies. But insurance companies also often sell add-on policies that offer protection in certain areas. Here are some of the most common home insurance coverages you might find:

  • Dwelling coverage is insurance that covers qualified damages to the home itself. If the siding of your home tore off in a major storm, dwelling insurance might cover the cost of repairs. Insurance companies might sell add-ons for roof damage, water back/sump pump overflow, flood insurance and earthquake insurance.
  • Personal property coverage pertains to the cost of replacing possessions in your home, such as furniture. If someone broke into your home and stole personal items, personal property coverage might reimburse you. If you need to protect valuables, your agent might recommend you purchase a scheduled personal property endorsement for higher coverage limits.
  • Personal liability coverage protects against lawsuits for property damage or injury. If a delivery driver slipped and fell on your icy driveway, liability coverage might pay for their medical expenses and court costs if they sued you. Some insurance companies offer add-on policies that extend your liability coverage limits.
  • Loss of use coverage might cover additional living expenses you have after your home has been damaged. This might include hotel stays, groceries and gas while your home is being repaired. If your house is under construction after a covered claim, loss of use coverage might pay for your temporary hotel and food expenses up to your policy’s limit.

Generally speaking, your agent may recommend that your home insurance coverages be based on your lifestyle, where you live and the value of your assets.

Keep in mind that your agent may recommend you add coverage as time goes on. If you adopt a puppy six months after you purchase your home insurance policy, your agent may recommend you add pet coverage when the time comes. Or, if you take on a remote job, you can contact your insurance company and see if you should add home business coverage for a small fee.

Every home insurance coverage has a policy limit. A policy limit is the highest amount of money your insurance company will give you after a covered loss. For example, if your dwelling coverage limit is $400,000, that may limit how much is paid out if your home is damaged or destroyed by a covered peril to no more than $400,000, although factors like your deductible may come into play.

When you purchase a home insurance policy, you may be able to set your own policy limits. As a rule of thumb, you may be recommended to have enough dwelling coverage to rebuild your home in its current state, enough personal property coverage to cover the full value of your personal items and enough liability coverage to protect your personal assets.  

[ Read: What is Dwelling Insurance? ]

Reimbursement coverage types

There are three different coverage options commonly provided by home insurance companies. Each option affects your premium differently.

  • Actual cash value (ACV) is based on the current market value, or how much your home and personal property is worth, with depreciation factored in. Most home insurance policies offer ACV reimbursement by default. It can be the lowest option.  
  • Replacement cost value (RCV) works in the same way as ACV, but without depreciation factored in. That means you might get a higher payout after a covered claim. RCV home insurance policies can be more expensive than ACV policies, and you may need to purchase an endorsement to get it. Your agent may recommend this if you own valuables or have an expensive home.
  • Guaranteed replacement cost (GRC) is also referred to as extended replacement cost (ERC), and this option can cover the complete cost of rebuilding the home, even if that cost exceeds the policy limit. GRC can be the most expensive replacement cost type, and not all insurance companies offer it. Your agent may recommend this if you live in areas with extreme weather, wildfires, earthquakes or any place where home destruction is more likely. 

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Discounts and ways to save on home insurance

Homeowners insurance can be costly, so before selecting a plan, shop around to find the best deal based on your needs. It can be helpful to consult an insurance agent, read consumer reviews and check online insurance quotes to find companies with the lowest rates. Here are some other ways to save money on home insurance:

  1. Ask about available discounts: Some companies offer discounted policy rates if your home is in a gated community, if you bundle with your car insurance or if you’re part of a homeowner’s association.
  2. Bundle your insurance policies: Oftentimes, companies that sell home, auto and life coverage may deduct up to 15% off your premium if you buy two or more policies from them.
  3. Make your home safer: Some providers may offer a discount if you install fixtures that make your home safer, such as smoke alarms or a security system, that reduce the likelihood that damage or theft will occur in the first place.

How do past claims impact home insurance cost?

It depends on the nature of the claim. Just how much a claim raises your premium varies in part on the provider and the nature of the claim.

There are also further complications when you make the same type of claim twice. Not only can this increase what you pay each month, but, depending on you and your home’s history, it’s possible the provider may even decide to drop you.

Though your premium may increase if you are found at fault, it’s also possible for your monthly bill to increase even if you’re not found to be liable. Your home may be considered riskier to insure than other homes.

Home insurance cost FAQs

No, states do not require homeowners to get insurance when they purchase a home. However, if you choose to get a mortgage loan, most lenders will require you to have some insurance.

To determine how much coverage you should purchase, talk to your agent about your home inventory, your overall worth, and of course, comfort level. Also discuss factoring in the location of your home, and evaluate risks based on weather, fires and other events that could potentially damage or destroy your home.

There are a few ways to potentially get home insurance discounts. Discount options include things like:

  • Bundling your home insurance policy with another policy (such as auto).
  • Going claims free for extended periods of time.
  • Making certain home improvements.
  • Living in a gated community.
  • Installing a security system.

In 2018, 34.4% of home insurance losses were wind and hail related, 32.7% were fire or lightning related and 23.8% were water damage or freezing claims. Only 1% of claims were related to theft, and less than 2% of losses were liability claims. These figures are according to the Insurance Information Institute.

In Florida the most common claims may be related to hurricanes, wind damage, water damage and flooding. In California, earthquake, flood and wildfire claims may be more common. When you purchase insurance, talk to an agent about the specific risks in your area and ask about separate insurance policies you might need, like flood or earthquake coverage.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

Getting a second chance with credit repair – Lexington Law

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Credit can be difficult – it’s easy to make mistakes. You apply for credit card after credit card and get approved for every single one of them. You feel like a VIP. Your buying potential seems unlimited, and the temptation to spend is strong. Then, like Brittany, you begin to rationalize your spending. “It’s only a little credit here and only a little credit there,” you think.

Sooner or later, your cards are maxed out, and you’re barely able to keep up with the minimum payments each month. You’re no longer a VIP, but a someone who is a financial risk in the eyes of creditors. You might find yourself in a situation where you may have a financial emergency that you can’t cover. Like Brittany, you may be denied for a necessary loan. Instead of being approved for credit like you were before, you face denial after denial, which can be humiliating. But when you’re faced with this situation, what can you do? Who do you turn to? It may feel like there’s no way of getting what you need, because credit impacts so many aspects of our lives – from being able to get a credit card to buying a home, to how high insurance premiums are going to be or even if you get hired for a job.

Impact of Bad Credit

Bad credit can have serious consequences and in Brittany’s case it influenced her becoming homeless and hopeless. Her credit created challenges as she struggled to find housing to rent or to own. Credit can make or break you. It can be the difference between paying or saving thousands of dollars in interest, between homelessness and having a roof over your head. Credit impacts your lifestyle and having good credit can help you have the type of lifestyle you deserve.

Going from bad to good credit may feel hopeless, and fixing it can seem impossible. Luckily, the right inspiration can lead to starting the credit repair journey. This can be daunting, but Brittany found the inspiration to start hers. It was her family. She wanted to give her child a better life. Good credit can lead to a more stable, secure future – and that’s something a lot of us want to give our children. But it can be easy to lose hope if you’re drowning in debt, or if you don’t have the credit score needed to qualify for a home.

Credit Repair

Enter Lexington Law Firm. We will challenge negative accounts on your behalf that are unfair and inaccurate. In 2017, we saw 10 million removals from our client’s credit reports. We have over a decade of experience working with hundreds of thousands of clients on working to improve their credit, making us the trusted leaders in credit repair.

We will personalize your case to your unique credit circumstances – ranging from medical bills to divorce to help you with errors on your credit reports. With extensive knowledge of consumers rights and laws related to credit reporting, and a team of paralegals and attorneys fighting on your behalf for your right to a fair and accurate credit report, there is hope. There is a second chance. We offer credit repair, credit monitoring, and identity theft protection services to help you stay on track. Lexington Law Firm wants to help you reach your goals, like Brittany did, so that you can have the second chance you deserve that can help lead you to a better future. Call today for your free credit consultation.

rebuilding credit

Disclosure: Similar results should not be expected and are not guaranteed. Your results will vary.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Source: lexingtonlaw.com

Getting a second chance with credit repair

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Credit can be difficult – it’s easy to make mistakes. You apply for credit card after credit card and get approved for every single one of them. You feel like a VIP. Your buying potential seems unlimited, and the temptation to spend is strong. Then, like Brittany, you begin to rationalize your spending. “It’s only a little credit here and only a little credit there,” you think.

Sooner or later, your cards are maxed out, and you’re barely able to keep up with the minimum payments each month. You’re no longer a VIP, but a someone who is a financial risk in the eyes of creditors. You might find yourself in a situation where you may have a financial emergency that you can’t cover. Like Brittany, you may be denied for a necessary loan. Instead of being approved for credit like you were before, you face denial after denial, which can be humiliating. But when you’re faced with this situation, what can you do? Who do you turn to? It may feel like there’s no way of getting what you need, because credit impacts so many aspects of our lives – from being able to get a credit card to buying a home, to how high insurance premiums are going to be or even if you get hired for a job.

Impact of Bad Credit

Bad credit can have serious consequences and in Brittany’s case it influenced her becoming homeless and hopeless. Her credit created challenges as she struggled to find housing to rent or to own. Credit can make or break you. It can be the difference between paying or saving thousands of dollars in interest, between homelessness and having a roof over your head. Credit impacts your lifestyle and having good credit can help you have the type of lifestyle you deserve.

Going from bad to good credit may feel hopeless, and fixing it can seem impossible. Luckily, the right inspiration can lead to starting the credit repair journey. This can be daunting, but Brittany found the inspiration to start hers. It was her family. She wanted to give her child a better life. Good credit can lead to a more stable, secure future – and that’s something a lot of us want to give our children. But it can be easy to lose hope if you’re drowning in debt, or if you don’t have the credit score needed to qualify for a home.

Credit Repair

Enter Lexington Law Firm. We will challenge negative accounts on your behalf that are unfair and inaccurate. In 2017, we saw 10 million removals from our client’s credit reports. We have over a decade of experience working with hundreds of thousands of clients on working to improve their credit, making us the trusted leaders in credit repair.

We will personalize your case to your unique credit circumstances – ranging from medical bills to divorce to help you with errors on your credit reports. With extensive knowledge of consumers rights and laws related to credit reporting, and a team of paralegals and attorneys fighting on your behalf for your right to a fair and accurate credit report, there is hope. There is a second chance. We offer credit repair, credit monitoring, and identity theft protection services to help you stay on track. Lexington Law Firm wants to help you reach your goals, like Brittany did, so that you can have the second chance you deserve that can help lead you to a better future. Call today for your free credit consultation.

rebuilding credit

Disclosure: Similar results should not be expected and are not guaranteed. Your results will vary.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Source: lexingtonlaw.com

Does a High Credit Score Lower Car Insurance

You probably already know how your credit score can affect interest rates for any mortgages, loans, and credit cards you take out. But what about car insurance? Does having a good credit score lower the premiums you’ll pay for it?

The answer is “mostly yes,” as this article will attempt to explain. In all states except California, Massachusetts, and Hawaii, car insurance companies can use your credit score to determine your likelihood to pay, as well as to judge the risk you pose on the road. And while that may sound good on the surface, it does carry a fair bit of controversy.

How Car Insurance Companies Use Your Credit Score 

Many car insurance companies (except in the three states mentioned above) confidently use your credit score to come up with car insurance plans, primarily because multiple studies have shown that individuals with high credit scores tend to get into fewer road accidents than their low-scoring counterparts.

Unfortunately, the “score” these car insurance companies come up with is NOT exactly the credit score determined by FICO. Each individual car insurance company is free to consider any of the 30+ financial factors that make up the FICO score – and is likewise free to leave out any of those factors – in coming up with their own “score.”

And here’s the shady part: These car insurance companies are actually not obliged by law to tell you how they came up with their scores. That means they can put more weight on, say, how diligently you pay your bills, instead of putting more significance on your road safety track record.

On the other hand, most reputable car insurance companies do come up with fairly accurate “scores” to use in working out insurance plans. And the trend is still evident: The higher your credit score, the lower your premiums will be.

So What Should You Do? 

So as you can see, the way car insurance companies calculate how much you’ll need to pay each year is controversial at best. But it is how it is, and until things change, the best we can do is to make the most of it. Here’s how to make sure you find the best possible rates for your car insurance policy:

#1: Keep your credit score up. Keep a tab on your credit score, correct any mistakes you may find on your credit history, pay your bills on time, and use only 30% of your available credit. Remember, the higher your FICO score, the more you’ll save on car insurance premiums – even if there’s no way to tell exactly how much.

#2: Drive safely. Obey traffic rules, avoid getting into accidents, keep your papers up-to-date, and avoid whatever leads you to road rage. Car insurance companies WILL look into your road safety record when coming up with your policy.

#3: Shop around. Get quotes from as many reputable car insurance companies as you can afford to. While we can’t find out HOW they come up with their policies, we CAN compare prices.

Source: creditabsolute.com

Pros & Cons of Refinancing Your Home Mortgage Loan

If you purchased your home when the federal funds rate was at least 150 basis points — 1.5% — higher than today, an opportunity to profit from low interest rates is staring you in the face. In fact, there’s a good chance it’s surrounding you as you read these words.

Like millions of other homeowners paying more than necessary each month, you can take advantage of current low interest rates by refinancing your mortgage loan.

Knowing whether you should refinance your mortgage is trickier. Before you can decide, you need to know more about its upsides and downsides, including the potentially negative consequences for your personal finances and housing security.

Pro tip: If you decide that refinancing is the best option for you, Credible* will allow you to compare prequalified rates from multiple lenders in just minutes.

Advantages of Refinancing Your Mortgage Loan

Refinancing your mortgage loan could give you a financial boost by reducing your overall borrowing costs or creating low-cost financial leverage for home improvement projects and other financial goals. Many refinancing applicants realize more than one of these benefits.

1. It Could Reduce Your Lifetime Interest Costs

Reducing lifetime interest costs — and your total borrowing costs along with them — is among the most compelling reasons to refinance a mortgage. Many homeowners refinance with this objective in mind. They want to save money, and who can blame them?

Depending on the structure, type, term, and rate of your original loan, refinancing your mortgage could reduce your total interest expense in one or more ways:

  • Lowering the Interest Rate. Getting a lower interest rate is much more likely to occur if rates have fallen since your original loan’s issue and critical elements of your borrower profile — such as your credit score, income, and debt-to-income ratio — remain constant or improve.
  • Shortening the Term. A shorter term means less time for interest to accrue. The downside is the potential for a higher monthly payment.
  • Converting From Adjustable Rate to Fixed Rate. Refinancing your adjustable-rate mortgage loan into a fixed-rate mortgage loan eliminates the risk your interest rate will spike if prevailing rates rise.
  • Converting From Jumbo to Conventional. Jumbo loans generally carry higher interest rates than conforming (conventional) loans. Once your remaining balance drops below the conforming loan limit (about $485,000 in most markets), refinancing could reduce your lifetime borrowing costs.

2. It Could Lower Your Monthly Payments

Simply refinancing a higher-rate loan into a lower-rate loan with an equivalent term is likely to lower your monthly payments.

If a lower rate isn’t in the cards, a less desirable alternative is to refinance into a longer-term loan and spread your payments over a longer timeframe. The downside of this move is a higher lifetime borrowing cost.

3. It Could Increase Your Loan’s Predictability

Predictability isn’t a concern if your original loan has a fixed rate. You experience year-to-year variation on the escrow side, as your property taxes and insurance fluctuate. But your principal and interest payment remain fixed for the life of the loan.

But if your original loan has an adjustable rate, predictability is a problem, and refinancing to a fixed-rate loan is a reasonable solution. If your new fixed-rate loan prevents a costly upward rate adjustment, all the better.

4. It Could Eliminate Mortgage Insurance

The FHA mortgage loan program has helped millions of first-time homebuyers afford places of their own. Maybe you’re among them.

If so, you know that your FHA loan carries a hefty cost: high annual mortgage insurance premiums that remain in force for at least 11 years from the issue date (on loans issued after June 2013) — and permanently, in some cases.

Refinancing your FHA loan into a conventional loan could eliminate its annual mortgage insurance premium years ahead of schedule. You need only wait to accumulate 20% equity in your home, which should happen much sooner than 11 years (and certainly sooner than 15 or 30 years) after your original loan’s issue.

And as long as you have at least 20% equity when you refinance, you’ll avoid private mortgage insurance (PMI) as well.

5. It’s a Low-Cost Way to Tap the Equity in Your Home

If you plan to refinance anyway to take advantage of low interest rates, a cash-out refinance loan is a fine alternative to a home equity loan or line of credit.

Like those home equity products, a cash-out refinance loan is secured by the home’s value itself, reducing risk for the lender and facilitating rates far lower than credit cards and unsecured personal loans.

You can use this low-cost capital for basically anything, including:

  • Consolidating higher-interest debt
  • Financing major home improvements or repairs
  • Paying your kids’ college bills
  • Paying off your student loans
  • Settling medical bills and other major expenses

Disadvantages of Refinancing Your Mortgage Loan

Refinancing your mortgage is not a risk- or hassle-free endeavor.

Potential drawbacks include an arduous application process, no guarantee of approval or cost savings, the potential for a higher monthly payment, and the risk — heightened in down markets — that the required lender appraisal could actually backfire.

1. The Application Process Is a Pain

Applying to refinance your mortgage isn’t quite as involved or time-consuming as applying for a purchase loan. But it’s not a walk in the park or something to do on a whim.

As you did before your purchase loan, you must provide reams of documentation verifying your employment, income, and identity. And the deal won’t be done until you close, leaving you on pins and needles for weeks. Don’t go through with it unless you’re serious about refinancing.

2. Approval Is Not Guaranteed

The fact that you own your home doesn’t entitle you to refinance its mortgage.

If your borrower profile has deteriorated due to a drop in your credit score or income, a recent job change, or a higher debt-to-income ratio, your application could be denied outright or accepted on less favorable terms than expected.

3. You’re Not Guaranteed to Break Even

Most refinancing applicants expect their new mortgage loans to cost less than their original loans.

But there are plenty of scenarios in which that doesn’t pan out — and not just because the borrower intentionally refinances into a longer term (going from a 15-year to a 30-year mortgage, for example) or can’t find a lower rate.

If fate intervenes and you must sell your house before you break even on your refinance loan, you’ll never recoup your loan’s upfront costs.

And because all refinance loans have closing costs that push breakeven time into the future, you’ll have to wait some time — usually several years — before you sell.

4. Your Monthly Payment Could Increase

If your objective is to cash out some of your home’s equity or shorten your loan term, your monthly payment will probably increase. Nevertheless, the jump might come as a shock and can put a severe strain on your monthly budget over time.

Before taking out a loan that costs more than your current mortgage payment, be as sure as you can that it will remain affordable.

5. It Could Backfire in a Down Market

If home values in your area have declined since you purchased or last ordered a professional appraisal on your home, you run the risk of a lowball appraisal that squelches your chance of qualifying for a refinance loan anytime soon.

This outcome is likelier in areas with high (or increasing) rates of foreclosures and short sales. If you suspect an appraisal would do more harm than good and don’t urgently need to refinance, wait until the market improves.


Final Word

Refinancing a mortgage is not something to be done on a whim. Even when interest rates are low and your borrower profile is strong, the undertaking is no sure thing.

A forced relocation could compel you to sell your house years before you planned, wiping out most of your loan’s expected savings and causing you to lose money on the deal.

An unexpected job loss could threaten your family’s financial stability and put you at risk of losing your home.

A market downturn could leave you with less equity than you expected, putting your home improvement plans on hold.

Then again, you could see your refinance application approved without a hitch, reap thousands upon thousands of dollars in savings after closing costs through a lower monthly mortgage payment, and avoid the downsides of the unconventional loan that had outlived its purpose the day you first closed on your home.

There’s simply no way to predict what will happen. But as is always the case when the stakes are high, fortune favors those who know what could go wrong — and what could go right.

*Advertisement from Credible Operations, Inc. NMLS 1681276.Address: 320 Blackwell St. Ste 200, Durham, NC, 27701

Source: moneycrashers.com

What to know about FICO’s new credit scoring system

A woman looks at her credit card.

Disclosure regarding Lexington Law’s editorial content.

The Fair Isaac Corporation (FICO) has announced it will be updating its credit scoring system this summer when they roll out the FICO Score 10 and 10T, which together represent the biggest change to the FICO system since 2014. 

The new system is designed to help identify high-risk borrowers by incorporating people’s history of credit behavior, paying special attention to those who use personal loans to consolidate debt but do not pay that debt down. FICO has estimated that about 110 million users will see a change in their credit score under the new FICO 10 and FICO 10T systems.

Here we’ve broken down how the new system works, what effect you can expect it to have on your score and what to do differently under the new system.

What’s Different About the New Credit Scoring System?

The new FICO scoring system allows lenders to incorporate “trended data” that shows how responsibly a borrower behaves with regard to credit. It also adjusts how important certain information is when calculating your score.

Factors weighed more heavily in the new FICO scoring model include:

  • Personal loans, especially those used to consolidate credit card debt
  • Delinquencies, especially those in the past two years
  • Credit utilization ratio
What's different about the FICO 10/10T? They weigh personal loans, history of delinquencies, and credit utilization ratio more heavily.

Will My Credit Score Change?

Though millions are likely to see their scores change as a result of the switch to the FICO 10, not all of these changes will be significant, and some users could even see their scores receive a boost. FICO representatives estimate that about 40 million—with already high credit scores—could see their credit scores increase by a small amount, with another 40 million seeing a decrease in their scores.

Consider these factors and try to predict how your score may change in the switch to the FICO 10.

You’re likely to see a drop if:

  • You’ve had recent delinquencies.
  • You consistently carry a balance on your credit cards.
  • You took out a personal loan to consolidate credit card debt.
  • You’ve maintained a high credit utilization ratio in the past two years.

You’re less likely to see a drop (and your score might even increase) if:

  • You’ve stayed current on your payments in the past two years.
  • You’ve maintained a healthy credit utilization ratio in the past two years.
  • You only put high balances on your credit cards occasionally and pay those balances down quickly.

Note: The FICO 10 will become available in the summer, but that doesn’t mean lenders will start using it right away. Many lenders still use FICO 8 or FICO 9.

What Can a 20-Point Difference Make?

According to FICO, most users whose credit scores change with the new system will see a difference of around 20 points. While that may not seem like much, a 20-point difference can be significant.

Here are three ways a 20-point drop in credit score can impact you:

1. Higher Loan Interest

Depending on where your score started, a 20-point drop can cost you significantly when it comes to taking out a home mortgage or auto loan. For example: On a 30-year fixed rate mortgage of $200,000, someone with a 660 credit score will pay about $18,000 less in interest than someone with a 640.

2. Higher Premiums on Insurance

Credit is also one of the factors that determines the amount you must pay in insurance premiums, and a 20-point difference can be significant there as well. According to insurance comparison site The Zebra, the average difference in annual premiums from “very good” (740 – 799) to “great” (800 – 850) credit is $116.

3. Weaker Loan Applications

If your credit was already on the low side, a 20-point drop may do more than increase your interest and premiums—it can actually disqualify you for a number of applications. For instance, most low-interest mortgage programs (like FHA, VA and USDA) have strict minimum credit score requirements.

Minimum credit scores for various loan programs: 500–579 for an FHA loan at 10% down, 580 for an FHA loan at 3.5% down, 620 for a VA loan, 640 for a USDA loan, and 680–720 for a jumbo loan.

How Can I Keep My New Credit Score Up?

Best practices for keeping your credit score healthy will remain unchanged even after FICO rolls out its new system. However, certain tactics will be more powerful than others using the new FICO calculations.

Here are three key tactics for maximizing your new FICO score:

1. Keep Detailed Financial Records

The new credit scoring system weighs the last two years of debt balances, so it’s important to have accurate records on all of your lines of credit going back at least that far. Keeping pristine records of your debts is the first step to identifying and solving any problems or discrepancies. 

2. Pay Credit Balances Early in the Month

Even though it amounts to the same as paying your bill once a month, paying your credit balance twice a month or even once a week can improve your credit score. By preventing your credit balance from ever getting too high throughout the month, you lower your credit utilization score, which is weighed heavily under the new system.

3. Sign Up for Boosted Credit Services

Alternative credit models like UltraFICO and Experian Boost raise users’ credit scores by incorporating “extra” data, like utility bills and rent payments. If you’re not enrolled in one of these services and you’re concerned about your score taking a plunge following the FICO 10 rollout, signing up could offset any negative impact caused by the new model.

Bottom Line: Good Financial Habits Are Always a Good Idea

When it comes down to it, good credit habits are essential, and none of the changes being made as part of the FICO scoring update are revolutionary. The same positive financial behavior that resulted in a great score with the old system will prove successful using the FICO 10 as well. 

However, those who stand to be most impacted by a 20-point change in their score—like anyone whose score is currently on the cusp of two different credit categories—may want to use this information to strategize how best to protect their score from changes. There are a number of ways to work on improving your credit health that range from simple tweaks to long-term changes to your financial habits. It’s always a good time to start prioritizing your financial well-being!


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

What to know about FICO’s new credit scoring system – Lexington Law

A woman looks at her credit card.

Disclosure regarding Lexington Law’s editorial content.

The Fair Isaac Corporation (FICO) has announced it will be updating its credit scoring system this summer when they roll out the FICO Score 10 and 10T, which together represent the biggest change to the FICO system since 2014. 

The new system is designed to help identify high-risk borrowers by incorporating people’s history of credit behavior, paying special attention to those who use personal loans to consolidate debt but do not pay that debt down. FICO has estimated that about 110 million users will see a change in their credit score under the new FICO 10 and FICO 10T systems.

Here we’ve broken down how the new system works, what effect you can expect it to have on your score and what to do differently under the new system.

What’s Different About the New Credit Scoring System?

The new FICO scoring system allows lenders to incorporate “trended data” that shows how responsibly a borrower behaves with regard to credit. It also adjusts how important certain information is when calculating your score.

Factors weighed more heavily in the new FICO scoring model include:

  • Personal loans, especially those used to consolidate credit card debt
  • Delinquencies, especially those in the past two years
  • Credit utilization ratio
What's different about the FICO 10/10T? They weigh personal loans, history of delinquencies, and credit utilization ratio more heavily.

Will My Credit Score Change?

Though millions are likely to see their scores change as a result of the switch to the FICO 10, not all of these changes will be significant, and some users could even see their scores receive a boost. FICO representatives estimate that about 40 million—with already high credit scores—could see their credit scores increase by a small amount, with another 40 million seeing a decrease in their scores.

Consider these factors and try to predict how your score may change in the switch to the FICO 10.

You’re likely to see a drop if:

  • You’ve had recent delinquencies.
  • You consistently carry a balance on your credit cards.
  • You took out a personal loan to consolidate credit card debt.
  • You’ve maintained a high credit utilization ratio in the past two years.

You’re less likely to see a drop (and your score might even increase) if:

  • You’ve stayed current on your payments in the past two years.
  • You’ve maintained a healthy credit utilization ratio in the past two years.
  • You only put high balances on your credit cards occasionally and pay those balances down quickly.

Note: The FICO 10 will become available in the summer, but that doesn’t mean lenders will start using it right away. Many lenders still use FICO 8 or FICO 9.

What Can a 20-Point Difference Make?

According to FICO, most users whose credit scores change with the new system will see a difference of around 20 points. While that may not seem like much, a 20-point difference can be significant.

Here are three ways a 20-point drop in credit score can impact you:

1. Higher Loan Interest

Depending on where your score started, a 20-point drop can cost you significantly when it comes to taking out a home mortgage or auto loan. For example: On a 30-year fixed rate mortgage of $200,000, someone with a 660 credit score will pay about $18,000 less in interest than someone with a 640.

2. Higher Premiums on Insurance

Credit is also one of the factors that determines the amount you must pay in insurance premiums, and a 20-point difference can be significant there as well. According to insurance comparison site The Zebra, the average difference in annual premiums from “very good” (740 – 799) to “great” (800 – 850) credit is $116.

3. Weaker Loan Applications

If your credit was already on the low side, a 20-point drop may do more than increase your interest and premiums—it can actually disqualify you for a number of applications. For instance, most low-interest mortgage programs (like FHA, VA and USDA) have strict minimum credit score requirements.

Minimum credit scores for various loan programs: 500–579 for an FHA loan at 10% down, 580 for an FHA loan at 3.5% down, 620 for a VA loan, 640 for a USDA loan, and 680–720 for a jumbo loan.

How Can I Keep My New Credit Score Up?

Best practices for keeping your credit score healthy will remain unchanged even after FICO rolls out its new system. However, certain tactics will be more powerful than others using the new FICO calculations.

Here are three key tactics for maximizing your new FICO score:

1. Keep Detailed Financial Records

The new credit scoring system weighs the last two years of debt balances, so it’s important to have accurate records on all of your lines of credit going back at least that far. Keeping pristine records of your debts is the first step to identifying and solving any problems or discrepancies. 

2. Pay Credit Balances Early in the Month

Even though it amounts to the same as paying your bill once a month, paying your credit balance twice a month or even once a week can improve your credit score. By preventing your credit balance from ever getting too high throughout the month, you lower your credit utilization score, which is weighed heavily under the new system.

3. Sign Up for Boosted Credit Services

Alternative credit models like UltraFICO and Experian Boost raise users’ credit scores by incorporating “extra” data, like utility bills and rent payments. If you’re not enrolled in one of these services and you’re concerned about your score taking a plunge following the FICO 10 rollout, signing up could offset any negative impact caused by the new model.

Bottom Line: Good Financial Habits Are Always a Good Idea

When it comes down to it, good credit habits are essential, and none of the changes being made as part of the FICO scoring update are revolutionary. The same positive financial behavior that resulted in a great score with the old system will prove successful using the FICO 10 as well. 

However, those who stand to be most impacted by a 20-point change in their score—like anyone whose score is currently on the cusp of two different credit categories—may want to use this information to strategize how best to protect their score from changes. There are a number of ways to work on improving your credit health that range from simple tweaks to long-term changes to your financial habits. It’s always a good time to start prioritizing your financial well-being!


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

7 Ways to Utilize Your Life Insurance Policy’s Cash Value

Permanent life insurance policies—like universal, variable and whole life—offer more than a death benefit. Some include cash value, which is a pool of money you can use while still alive. 

If you’ve had a policy for years, the cash value could be considerable. “The accumulation could be more than you put in, and this opens up all kinds of options,” says Jonathan Howard, a certified financial planner with SeaCure Advisors in Lexington, Ky. 

The cash value in permanent life insurance is your money, to be tapped as needed, but your options for doing so will depend on the type of policy and the carrier. Before doing anything, ask the insurer how much you can safely withdraw per year based on the cash value balance and policy terms. If you withdraw too much too early, the policy’s cash value could run out, forcing you to start paying more in premiums or have the coverage lapse.

If you no longer need coverage, it might be tempting to stop the policy and cash out all at once, but consider the tax ramifications, says Luke Chapman, a partner with Precision Wealth Partners in New Castle, Del. Any cash value growth above what you paid in premiums is taxed as ordinary income when withdrawn. For example, if you paid in $20,000, have $100,000 in cash value and withdraw the difference, the $80,000 of growth is taxable.

There are better ways to put that cash value to work that won’t ramp up your tax bill.

1 of 7

Live Off of It

A man stacking coins.A man stacking coins.

A more tax-effective option is to withdraw only what you need each year. Howard recommends keeping some money for an emergency fund, perhaps 12 months of expenses, with the rest used to supplement your retirement income. Withdrawals draw down the tax-free premium payments first; taxes are owed only after you start withdrawing the gains.

2 of 7

Borrow Money

A person ready to sign some documents to take out a loan. A person ready to sign some documents to take out a loan.

You can also tap the cash value through a policy loan. You won’t owe taxes for withdrawing gains this way. Plus, you’ll have the option to repay the money, whereas you can’t reverse withdrawals. If the money is not repaid, the death benefit will cover the loan balance when you pass away.

The insurer will charge interest for the loan. “The interest rate is determined by the policy contract and is carrier specific,” says Howard. “It’s typically 4% to 8% a year.” Policy loan rates don’t usually change with market conditions, he says, so don’t expect a deal today just because overall interest rates are low. Your remaining cash value can be used to pay the interest.

3 of 7

Exchange It for an Annuity

Concept art with several people looking at charts and graphs. Concept art with several people looking at charts and graphs.

The IRS lets you swap your permanent life insurance for an annuity through a 1035 exchange, which is a tax-free transfer of one contract for another. This move can generate more retirement income. “Let’s say the max payout stream from a cash value insurance policy is $10,000 a year. Converting to an annuity might generate $12,500,” Chapman says. An annuity could also guarantee the payments will last your entire life, but you will be canceling your life insurance policy, a move that can’t be reversed.

4 of 7

Convert to a New Policy to Pay for Long-Term Care

A nurse helps a woman at a nursing home.A nurse helps a woman at a nursing home.

If you’d like coverage for long-term care, consider converting your life insurance into another policy with a long-term care rider (if yours doesn’t have it already). You keep your life insurance, but part of the death benefit can be used to pay for long-term care expenses.

5 of 7

Use It as Collateral

A couple sitting in front of a house.A couple sitting in front of a house.

The cash value is an asset that increases your chances of qualifying for a loan or mortgage from a lender. It can even serve as the loan’s collateral, but Chapman warns to structure the deal carefully, as there can be tax consequences. Always ask an insurance expert before using cash value this way.

6 of 7

Tap It to Pay for the Policy

Concept art showing a life insurance policy document and calculator.Concept art showing a life insurance policy document and calculator.

The cash value can also be used to cover your life insurance premiums.

7 of 7

Leave It Alone

A couple who are declining something while speaking with a man on a laptop. A couple who are declining something while speaking with a man on a laptop.

You aren’t forced to do anything with your cash value. Left alone, the cash value will continue to accumulate, leaving a larger inheritance for your heirs, as withdrawals and loans reduce the final death benefit.

Source: kiplinger.com