Paralegal Page - Unusual Premium Calculations
Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Spring 2004, Volume 3, Number 2
Paralegal Page — Unusual Premium Calculations
by Pamela Butler O'Brien, Underwriting Counsel, and Donald A Brown, Paralegal
With real estate increasing in value and frequent refinancing, we are getting more and more unusual requests for title insurance coverage affecting rates. We have put together some examples of some of the different requests.
- The loan amount is more than the purchase price.
The purchase price is $184,000.00. The loan is $210,000.00. How do I figure the premium?
|The owner's policy is figured at $3.50/ thousand for the purchase price||$644.00|
|Simultaneous issuance of the lender's policy up to the amount insured||100.00|
|Additional lender's coverage 210-184=26, 26 x 2.50||65.00|
2. The owner's purchase title insurance in 1995 for $168,000.00. The property is now worth $350,000.00. They would like to purchase additional insurance to cover them for the full value of the property.
If the policy contained inflation protection, the owner's policy increased in coverage for the first five years by 10% of the original face amount of the policy. In other words, their policy increased $16,800.00 each year for the first five years. Their total coverage is currently $252,000.00. Therefore, they need to purchase additional coverage for $98,000.00. They will be charged premium on that amount at the current premium rate of $3.50 per thousand, for premium of $343.00.
If the policy contained no inflation protection, the policy amount is $168,000.00 and the insureds will have to pay for the difference between $168,000.00 and $350,000.00 or $182,000.00 at $3.50 per thousand for a premium of $637.00.
3. Now we are going to integrate the two situations that we have described above. The owner purchased a Lot in 1995 and purchased title insurance in the amount of $100,000.00. If the policy has inflation protection, the owner's policy increased in coverage 10% for the first five anniversaries of the policy. So, it has increased $10,000.00 dollars the last five years and would be worth 150,000.00. The homeowner's have now completed construction of their home, and an appraisal reflects the property is now worth $650,000.00. The homeowner's are now going to increase their coverage to the appraised amount, and refinance with a $600,000.00 loan. The first step is to calculate the premium for the additional owner's coverage - $500,000.00.
|$500,000.00 at $3.50/thousand||$1,750.00|
|Simultaneous issuance up to the amount of the owner's coverage $500,000.00||100.00|
|Additional lender's coverage 600-500=100, 100 x 2.50||250.00|
4. What if the purchase price is $650,000.00, and there will be both a first mortgage for $450,000.00 and a home equity line of credit for $110,000.00? The lender wants a policy for each mortgage. What is the premium?
Remember, as long as the total amount of coverage for the loan policies does not exceed the amount of the owner's coverage, the simultaneous issue premium is a flat $100.00.
|Owner's policy premium 650 x 3.50||$2,275.00|
|Simultaneous issue for first mortgage||100.00|
|Simultaneous issued for second mortgage||100.00|