CBS News
Homeowners insurance costs are going through the roof. Here’s why.
When Joy Sharp built a new home in the small coastal community of Wilmington, North Carolina, about eight years ago, her homeowners insurance cost was a relatively modest $1,400. That was then.
Now, and after a series of violent storms slammed the Atlantic coast in recent years, her annual premiums have more than quadrupled. “Now I’ve been given renewal rates of $6,000,” Sharp, 39, told CBS News. “So, it’s just every year, it goes up and up and up, and it’s not coming down.”
Florida resident Sam Weitzner and his wife, have been similarly socked since buying their Orlando home in Orlando in 2017. Their homeowners coverage has surged from $1,500 to nearly $6,000 a year, affecting their finances and forcing them to change insurers.
“Ultimately we decided to switch because, of course, obviously, the cost was too high,” he told CBS News. “It was affecting our mortgage payment and we just weren’t able to make ends meet with that. And so, it just became a priority because we knew that in order to be insured and continue owning our home, it was the only course of action.”
Sharp and Weitzner are hardly alone. Millions of Americans face rising homeowners insurance rates as natural disasters linked to climate change increase costs for insurers.
Home insurance rates around the nation jumped an average of 11.3% in 2023, with owners in Arizona, Texas and Utah seeing spikes of more than 20%, according to S&P Global Market Intelligence. Homeowners in Delaware, Hawaii, Mississippi and Vermont saw the lowest insurance rates increases, ranging between 2% and 4% last year.
“This is crazy”
Still, even more modest increases add up to hundreds of extra dollars every year for coverage, enough to frustrate Americans who are still coping with persistent inflation. Sharp recalls being shocked to learn she would have to pay nearly $6,000 under her revised home insurance policy without a commensurate increase in coverage.
“I kind of thought it was a joke,” she told CBS News. “I kind of thought, OK, where are my discounts? This has got to be like the three-year policy or else this is crazy. The rates went up, but the coverage on my home did not increase very much. I mean, that’s a budget buster that just destroys all the economics.”
The housing industry, already grappling with the impact of the highest mortgage rates in years, has taken notice. More than 20 housing organizations, including the powerful National Association of Home Builders and the National Multifamily Housing Council, urged the Biden administration and Congress in a letter this week to address the causes of rising insurance premiums.
Affordable housing providers, in particular, are facing sharply higher premiums — nearly 1 in 3 policies experienced rate increases of at least 25% in the most recent coverage renewal period, the groups said. They also underlined the impact of natural disasters in driving up costs.
“Starting around 2017, the property insurance market began to destabilize as more frequent natural catastrophes occurred,” the letter states. “Insured losses arising from natural disasters were calculated at $121 billion and almost $125 billion in 2021 and 2022, respectively, which are both well above the 10-year average of $81 billion.”
Among other potential remedies, the housing coalition is calling for the creation of federally backed homeowners insurance.
Insurers have either exited or stopped renewing policies in disaster-prone states like California, Florida, North Carolina, Oklahoma and Texas. Insurers say writing policies in those areas is too risky because of the increased likelihood of wildfires, tornadoes, hurricanes or earthquakes. The increasing frequency and severity of extreme weather — which scientists link to climate change — means bigger payouts by insurers, leading to higher premiums for millions of Americans.
Weather is the main reason insurance rates are climbing, but inflation is also playing a role, said Daryl Fairweather, chief economist at Redfin.
“When inflation is on the rise, it basically means that the cost of everything is going up,” Fairweather told CBS News. “And that includes the cost of maintenance for homes, the cost of remodeling homes. And that goes into the equation for home insurance.”
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Borrowing from your home equity can be a wise way to improve your financial health, especially in today’s economy. For example, you can tap into home equity to fund home renovations that may improve your home’s value. Similarly, home equity loans and home equity lines of credit (HELOCs) typically offer lower rates than credit cards and other types of borrowing products, making them a useful option for consolidating debt and reducing interest costs. And with Americans sitting on an average of $319,000 in home equity currently, these loans may offer higher borrowing limits than other options.
Current economic factors, including inflation and interest rates, are also boding well for borrowers right now, making it an even better time to consider this type of borrowing. For starters, the Federal Reserve is confident enough in the downward inflation trend to cut the federal funds rate at the last three Fed meetings. While the Fed doesn’t set mortgage rates, the federal funds rate influences the interest rates lenders charge on their lending products. While not at pre-pandemic levels, interest rates on home equity loans and HELOCs are slowly improving. The average home equity loan interest rate is currently 8.41%, while the average HELOC interest rate is 8.52% (as of December 19, 2024).
Still, the only economic constant is change. Inflation increased slightly in October, and other factors could alter the borrowing environment going forward. With that in mind, choosing between a HELOC and home equity loan will depend on your financial goals and how these products respond to changes in the market. Let’s explore which of these two home equity options might make sense for your situation.
Start comparing your home equity borrowing options online now.
Why a HELOC could be better than a home equity loan in 2025
HELOCs work like credit cards, offering a line of credit that can be borrowed from multiple times (up to the credit limit). This type of home equity borrowing can be a useful option if you want to use funds as needed over time, as opposed to getting one large lump-sum payment like a home equity loan. For example, if you’re renovating your home with multiple projects, a HELOC lets you access funds as needed for each phase, helping you avoid borrowing more than necessary upfront.
Just remember, HELOC repayment terms usually start with interest-only payments for a set number of years, typically five or 10 years.
“This is for someone who wants a low starting monthly payment, but keep in mind you may not be paying off all the principal,” says Adam Spigelman, senior vice president at Planet Home Lending. “If you borrow $50,000 and you make interest-only payments for five years, at the end of five years, you’ll still owe $50,000.”
Also keep in mind that HELOCs have variable rates that are tied to an index such as the prime rate, which is typically around 3% higher than the federal funds rate. So if you anticipate the Fed’s rate-cutting trend will continue, a HELOC might save you money in the short term. On the other hand, you might think twice about getting a HELOC if you believe rates will increase during your repayment term.
“When that index rate rises, your monthly payment may also rise. That higher payment can leave you with less money in your pocket, which can make it harder to stay out of debt. If the higher interest rate comes at a time when you’re starting to do the principal repayment, it can lead to payment shock,” Spigelman notes.
Find out how affordable the right home equity borrowing option could be today.
Why a home equity loan could be better than a HELOC in 2025
If you’re looking for more predictable financing, you may prefer a home equity loan for its fixed interest rate and monthly payment that remains the same during the life of the loan, regardless of rate adjustments.
“A home equity loan is a fixed rate and doesn’t fluctuate based on what the Federal Reserve does,” says Jeremy Schachter, branch manager at Fairway Independent Mortgage Corp. “So when the rates come down, your fixed rate doesn’t go down.”
While the Fed’s ongoing rate cuts might reduce borrowing costs on HELOCs in 2025, a home equity loan might be a better long-term option if you expect rates to rise during your loan term.
Home equity loans are a great option if you need a large, lump-sum payment to fund a large expense. You might use one to fund a major home renovation, consolidate high-interest debt or even cover your child’s college tuition. Since home equity loans often have lower rates than private student loans, they may help you save money in the long run.
Should you borrow from your home equity now or wait?
Deciding whether to borrow now or wait until 2025 or later depends on your financial situation, goals and borrowing preferences. As Schachter explains, the type of loan you choose matters, as fixed-rate and variable-rate options affect how your monthly payments change over time.
“Depending on your needs and goals with the funds for the loan, it may make sense not to wait to take out a HELOC because it does change with rates changing. If you are looking for a home equity loan, it may make sense to hold off until next year if your projects or use of the funds can be pushed out,” says Schachter.
The bottom line
Heading into 2025, the choice between a home equity loan and a HELOC comes down to how stable you want your payments to be, and which direction you anticipate interest rates are trending. So, take time to weigh the pros and cons of each option and how they might impact your budget. Finally, remember that home equity loans and credit lines are secured by your home, so you should never borrow more than you need, and make sure the payments fit comfortably into your budget before signing for one.