The Swami and Home Equity Insurance

By John McGory

A new wrinkle in the real estate world is the home equity insurance programs being promoted by Home Value Protection and other insurers.  The Real Estate Swami says all should move carefully when considering such policies.

The equity insurance programs are aimed at protecting homeowners from steep drops in the value of their home.   

Here is how it works.  Insurance buyers pay a monthly premium.  The insured will collect on the policy if both of the following happen.  One, the house sells for less than the value determined on the policy.  And two, homes throughout the area have dropped overall according to a national home price index. 

So if your home drops 20 percent but the overall market only drops two percent, then the policy will pay you two percent of your losses, not 20 percent. 

The Real Estate Swami says there are several considerations to keep in mind if you are considering purchasing a home equity insurance policy.

“In the past five years local home prices have dropped 11 percent.  It is likely we are near the bottom since little new housing stock is being added to the market.  Also, home equity insurers targeted central Ohio because of stable home prices.  While certain neighborhoods may continue to suffer, it is unlikely our regional price index will drop another 11 percent,” says the Swami.  “Keep in mind your payment is based on the percent drop of the entire market, not your individual home.”

The Swami says if the entire market does drop another 11 percent in the coming years, then the chances of the home equity insurance companies surviving would be slim. The best advice is to continue to try and build equity in your home.

“Pay yourself,” counsels the Swami.  “Reducing the principle on your loan each month by paying a little extra will put you in a better position when you sell than most insurance policies.”

John McGory is a licensed real estate agent in central Ohio.  He is also a partner in Webface, a content marketing company.  Get more information at www.web-face-solutions.com