Five Myths About Homeowners's Insurance

Homeowner's insurance is one of the most common types of insurance and one of the least understood. Many homeowners believe that their policies will cover them for practically any damage sustained to the house or contents. The reality is that homeowner's policies contain many exclusions and restrictions on coverage that can leave you with a coverage gap. Here are five common myths about homeowner's insurance.

1. Loss-of-Use Coverage

If you have damage to your home severe enough that you cannot live in it while it is repaired, you likely expect that the insurance company will put you up in a hotel while the work is being done. However, that is not necessarily true. Not all policies include a loss-of-use provision. If you have to pay for a hotel, meals and other services out of pocket, it can add up quickly and put you at financial risk. If loss-of-use is covered, it will be stated explicitly in your policy, along with any limits of coverage. For example, your policy may state a maximum per diem amount or restrict the length of time the expenses will be paid for.

2. Replacement Cost

Replacement cost in a homeowner's policy refers to valuing the loss at the amount it will cost to replace the item. For example, if your four-year-old computer is lost in a fire, replacement cost coverage would allow you to purchase a new one with similar features. Most homeowners believe that is what will happen if they have a claim, however, the bulk of policies do not carry this clause. If not included, losses will be valued at what they were worth in their condition before the calamity. The four-year-old computer might be valued at $250 - not enough to purchase a new one. Replacement cost clauses are a valuable inclusion in a homeowner's policy.

3. Flood Coverage

Almost all homeowner's policies exclude flood coverage, along with earthquakes and other natural disasters. Floods can occur from a number of causes, such as a hurricane, burst pipes or sewer backup. A flood is one of the most common causes of home damage and the destruction of contents. There are companies that specialize in flood coverage, and, if you live in a susceptible area, look into having a separate flood policy. Your mortgage company may require this additional coverage as well.

4. Termites

Termites live all over North America but are most destructive in southern climates, where their lifecycles are not affected by cold weather. Termites eat wood - lots of it - and can eat the supports in your house as easily as fallen leaves in the forest. They live in large colonies and, collectively, can destroy the structure of your home. Repairing termite damage and eradicating them can cost thousands of dollars. Most policies exclude termites and other pest damage. If you live in a susceptible area, the best insurance is to have the house regularly checked and sprayed by a professional.


5. Valuation of Loss

When you have a house insurance claim, the insurance company will send out an appraiser to determine the extent of the damage and the best way to fix it. The appraiser will assess a value to the loss which will be the minimum the insurance company can pay in order to meet their contractual obligations. However, you do not have to take that value as final. If you can prove your loss should be valued higher, you can negotiate the settlement with the company. Keeping receipts and pictures of valuable items will help you back up your claim.

The Bottom Line

To really know what is in your homeowner's policy, you should read it thoroughly. Look for exclusions to coverage and decide how you will cover those risks. In some cases, your insurance company will have separate add-ons that they can attach to your policy or you can get specialized insurance from another company. For those risks that cannot be insured, analyze how you will financially cover those risks if they should happen. 

Compliments of:

Robin Jensen, AMP

Verico Canada First Mortgage

P: 403.455.5405

Designed and developed using the GoMax Solutions CRM platform.

Variable Rates are SO Over!

 Fixed or Variable? It's No Contest (Globe and Mail)

"Variable-rate mortgages are so over.  Go fixed rate if you’re arranging or renewing a mortgage, and think hard about the four-year term. If you take in all the recent developments in the mortgage market, this is the most logical strategy." 

"Variable-rate mortgages are being sold at the prime rate in many cases right now, which is 3 per cent. The traditional discount off prime? Snuffed out by the banks. They’ve decided they aren’t making enough money from discounted variable-rate mortgages, so goodbye discount for the most part. If you shop around, maybe you’ll get 0.2 of a point off prime."
Source: The Globe and Mail, Oct. 31, 2011

Read more...

Low rates for fixed mortgage

DON'T Sign That Mortgage Renewal

Today, banks are doing a very good job of retaining their mortgage clients, in fact they are renewing in the area of 80 to 90% of the mortgages they hold.  The problem here is the consumer is paying a price because more than half of these mortgages are being renewed at posted rates.  What does this mean to the average consumer?

The posted rate today for a 5 year mortgage is 5.39%, but the discounted rate for a 5 year term today is about 3.89%, a difference of 1.5%.  That doesn't seem like a big deal... unless you crunch the numbers!  On a $250,000 mortgage amortized over 25 years that makes a difference of about $18,000 in interest that you will pay over the next 5 years....ouch!

I don't know about you, but if I could save $18,000 I would be pretty happy.  So how do you save this kind of money?  I recommend you take your mortgage renewal to a mortgage broker and get them to review your mortgage.  In fact, I think an annual mortgage review is a great service that many mortgage brokers offer today.  Think about it, most people meet with their financial planner yearly to review that $50,000 RRSP, but those same people often have much more owing on their mortgage and leave it year after year, renewal after renewal really giving it very little time or thought?

A Mortgage Broker can advise you on not only the rates available, but often more important options as outlined below:

• Should you take a fixed or variable product?  There is no black or white, right or wrong answer as it depends on your individual risk tolerance and financial situation today and down the road.  Maybe you should consider a Variable Rate at 2.5% with a fixed payment set at say 4%?  You get some great savings today and even if the rates jump up down the road, you are paying higher interest on a much lower mortgage amount, often saving you a lot of money.
   
• What term should you take?  Over 3/4's of the mortgages in Canada are closed for 5 years or longer, meaning if you change or payout your mortgage prior to the end of term you pay a penalty.  The average mortgage is only held for just over 3 years and more than 50% don't make it to renewal.  So that means that more than half of the mortgage holders are paying a penalty at some point.  So is a 5 year term the best idea or should you consider some other options?
   
• Are all lenders penalties the same?  Absolutely not, some calculate the penalties based off posted rates and some off discounted rates and this can change the amount you have to pay by thousands of dollars.  The sad thing is that most people don't find this out until they are facing a situation where they have to pay the penalty and it is too late.
   
• What is the best payment frequency?  You can literally save thousands of dollars just by switching your mortgage from monthly payments to accelerated bi-weekly payments.  For example if you were paying $1,000 per month and changed to $500 every 2 weeks, you would payoff your mortgage 3 years sooner, again saving you thousands.

So the lesson here is, speak to your mortgage broker and let them do what they do best and make sure you ask lots of questions because knowledge is power.  If I can spend an hour going through my mortgage with a professional and save thousands, as a businessman that is a pretty good return on investment!

Should you have any questions or wish for further information, please don't hesitate to contact us.

ps: Please remember to think of us for any friends/family needing mortgage advice!

Robin & Martin Jensen
VERICO Canada First Mortgage
P: 403.455.5405 or 1.800.557.4025
F: 1.800.557.4026
www.jensenteam.ca

Dirty Sexy Mortgage Money

Rates have 'again' reached an all time historical low for the 5 year fixed rate!  This is great new for buyers/refinancing/switches; not great news for the rest of the financial industry. 

Fixed rates continue to drop this week and are now hovering between 3.39% and 3.79% for the 5 year term. The average rate is 3.64%.  This drop to 3.39% started today with a few lenders, so I other lenders will likely try to compete; depending on the type/quality of the mortgage.  Within the multi-component mortgages, the 5 year fixed rate is 3.59% and variable remains at prime – 0.75%.  This is very competitive, especially for the type of mortgage!

The rates quoted above are all full feature mortgages with standard prepayment terms (unless otherwise noted), acceptable payout penalties, and with credible lenders.  I have seen a few lower rates flying around the mortgage world, but buyers beware! 

I was working with a client last year who ran into an unfortunate circumstance and had to refinance her mortgage.  She ended up paying thousands ($9,000) more than she should have ($2,100) in payout penalties because of a ‘special option policy’ buried within the contract.  She originally obtained her mortgage after driving past a bank sign with a sexy low rate advertised and took the bait :).  This is what advertising is meant to do!  The repayment and payout penalties seemed standard in the contract; however the bank failed to mention that they calculate IRD/payout “a little different than most lenders” ($6900 differently).

When you are financing one of your largest investments, your home, look at the bigger picture and not just the rate.  Banks work in their best interest; brokers are unbiased and work in YOUR best interests (we keep the banks honest).  If you are seduced by the sexy flashy signs; make sure you do your homework!   

We’ll likely start to see the dust settle with lenders and rates by later next week.  I’ll keep you posted!  If you have any questions in the meantime, please don’t hesitate to call/email me.

Genworth Financial - Habitat for Humanity

Genworth Financial is a proud sponsor of Habitat for Humanity.  They scooped us out of our office and onto the construction site on June 15, 2011!

The families supported through Habitat for Humanity are caught in a vicious cycle, making too much at low-paying jobs to take advantage of programs such as subsidized housing, yet too little to properly provide for their families. Many are forced to make impossible choices between such essentials as shelter and food, between paying rent and paying utility bills. These are choices no family should have to make.

We spent the day working on row housing units in various stages of construction.  I teamed up with Jimmy Lee (ING) and Lisa Bartlett (Macquarie Financial) to install K3 to the main floor of one of the units.   Our host, Nancy Kamineski with Genworth, rounded up the remaining troops to paint walls.  Jimmy showed us the “ancient Chinese secret” (as he called it) of troweling glue on the floor.  Lisa had never used an air staple gun but got the hang of it quickly… there was no stopping her! 

Although I’m much more efficient at doing mortgages, we did manage to complete about 500 sq. feet of floor in 8 hours.  It was an privilege to exchange our fancy calculators for some mighty power tools to help a family in need. 

 

Habitat for Humanity offers families who qualify and are able to repay an interest-free mortgage the hand up they need to break the cycle of poverty.  Although I don’t deal in these types of mortgages directly, I feel proud that our financial sector’s is giving back to the community.  A home is more than just where you live, it's where you create, it's where your story begins.  I was happy to do a small part in helping a family improve their quality of life.