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Can I Insure My Home Against a Housing Bubble?

It's not unusual for homeowners to think of their residential properties as investments. Many purchase homes with the intent to raise families and then downsize to smaller homes once the kids are grown. The expectation is that the property will appreciate in value between the date of purchase and when the owner decides to sell. The result is recouping the original investment, including the interest on the mortgage, and having funds left over after purchasing that smaller place.

Unfortunately, things don't always go as expected. As many people learned during the last recession, property values in North America can fluctuate and not always in a good way. The result can be a housing bubble that bursts and leaves the owner with more debt than equity. Fortunately, there is one way to secure at least some protection from this type of event.

Understanding the Housing Bubble and What Can Happen

A housing bubble occurs when properties in a designated geographic area suddenly increase in value based on different factors. There may be some speculation about general growth in the area or an increase in demand by potential buyers due to any number of reasons. The thing to remember is that the bubble will not last forever. The general pattern involves a period of time when property values increase dramatically, level off for a short time, and then drop almost as rapidly as they increased.

Homeowners who purchase properties during a bubble and still own them when the inevitable decline begins can often find themselves owing more for the properties than they can command in the marketplace. If the owners are lucky, they have already paid off their mortgages and can sell the properties for a loss. Those who are less fortunate still have active mortgages and have to pay off those balances before they can do anything with the property.

What Can Be Done?

Just as business owners insurance protects company owners from specific covered events, there are options for home insurance in North York that can provide some protection from a housing bubble. Known as home equity or mortgage protection insurance, these plans set a minimum amount that the owner can receive if the home price index falls below a certain level. By filing a claim, it's possible to secure the funds needed to settle any outstanding debt associated with the property, sell the home, and get out from under before the property values drop any further.

If you have purchased a home and wonder if there is a chance the market value could fall below what you paid for the property, it pays to talk with an insurance broker about this type of coverage. Keep in mind that depending on the particulars of the property, the location, and the amount of risk the provider is willing to assume, the total benefits may or may not be enough to completely offset the loss. Even so, home equity protection coverage does ensure that you have some measure of security no matter what happens in the housing market.

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