By Sabrina Karl

Although the vast majority of homeowners carry homeowners insurance (if you have a mortgage, it’s required), only about a fifth of homeowners have reviewed their policy to understand what it covers, or have shopped around for a good policy price.

A new ValuePenguin survey of 1,849 homeowners with homeowners insurance found that almost half (47 percent) said they don’t know what their policy covers, and 18 percent went as far as saying they have never reviewed their policy.

Meanwhile, although 64 percent reported they review their policy annually, only 71 percent said they feel confident in their understanding of what’s covered.

A common misconception turned up by the survey is the belief that flood damage is covered. One in three respondents (34 percent) believe their policies cover flooding, even though most policies do not. Among millennials, almost 50 percent have this misconception.

Many homeowners may also be paying more than they need to for coverage, since only a fraction are shopping around for the best rate. Approximately a fifth (21 percent) said they researched rates, either by comparing online quotes or working with an independent insurance agent.

So how are most homeowners choosing their homeowners insurance provider instead? More than a third (36 percent) simply opened a policy with their auto insurer, while another 36 percent chose who was recommended to them by friends or family (15 percent), their mortgage lender (12%), or their realtor (9%).

While homeowners insurance can seem like a simple checkbox to mark when you buy your home, and then keep current once a year, policies can range widely in terms of perils covered, deductibles required, and maximum payouts allowed, as well as rates charged. Doing your homework to choose the best coverage, and for the best price, is a savvy homeowner move.

By Sabrina Karl

One of the most confusing mortgage choices is whether to pay points. It doesn’t help that the term is used two different ways, or that the right answer varies by situation. But the good news is that you can boil your decision down with a simple math calculation.

A “point” refers to one percent of your loan amount. So on a $200,000 mortgage, one point equals $2,000. You also need to be aware that lenders quote two kinds of points. Origination points are a fee you pay the lender for their services, and you may or may not be able to negotiate it.

But discount points are different, and are the ones borrowers find themselves dithering over. A discount point is a pre-payment of interest at the time of closing in exchange for a lower mortgage interest rate. It allows you to “buy down your rate”.

Lenders often let you pay one to three points, but we’ll use an easy one-point example. Opting to pay a point at closing typically lowers your mortgage APR by about a quarter percent (though lenders vary). So for a $200,000 mortgage with a 30-year fixed rate of 3.75 percent, paying one point, or $2,000, could lower your rate to 3.50 percent, which would drop your monthly payment from $926 to $898.

Now divide the cost of the point ($2,000) by the monthly savings ($28) to see how long it will take to break even. In our example, it would take 72 months, or six years, to earn back your $2,000 investment. Expect to stay in your home longer than that? Then buying points makes good sense.

Of course, if you can’t afford to bring more money to closing, or you have a higher-priority use for your funds, a no-point mortgage will be your own smart mortgage choice.