Understanding RCE: Why Your Home Insurance Premium Might Rise When You Refinance

If you're refinancing your mortgage, you might notice a change in your homeowner’s insurance policy—specifically, an increase in your dwelling coverage. This often surprises homeowners, especially when they didn’t make any recent improvements to their home. The culprit? A new Reconstruction Cost Estimate, or RCE.

What Is an RCE?

RCE stands for Reconstruction Cost Estimate. It’s the dollar amount your insurance company estimates it would cost to completely rebuild your home using similar materials, labor, and modern construction standards after a total loss—think fire, natural disaster, or other catastrophic events.

This is not the same as your home’s market value or purchase price. Instead, it focuses purely on what it would cost to reconstruct the property from the ground up, including debris removal, permitting, and code updates.

Why Does Refinancing Trigger a New RCE?

When you refinance your mortgage, your lender re-evaluates your home and your insurance policy. As part of that process, your insurance provider may generate an updated RCE to ensure the home is adequately insured based on today’s construction costs.

With rising material prices, labor shortages, and updated building codes, your RCE can increase—sometimes significantly—compared to when you first bought your home. And since dwelling coverage is typically tied to this estimate, your insurance premium may increase as well.

Does a Higher RCE Mean More Protection?

Yes—and that’s a good thing. While it might raise your monthly escrow payment slightly, it ensures you have sufficient protection if something goes wrong. Underinsuring your home could leave you with a large financial gap if a full rebuild is needed.

What You Can Do:

• Review your RCE: Ask your insurer for a copy and see how it compares to previous estimates.
• Ask about coverage flexibility: Some carriers allow you to customize coverage levels slightly above or below the RCE, though most lenders require coverage to match or exceed the estimated cost.
• Shop around: If your premium jumps significantly, it may be worth getting quotes from other providers.

Final Thought:

Refinancing can be a smart financial move—but don’t overlook how it impacts your insurance. An updated RCE helps ensure your biggest asset is fully protected, even if the premium feels like an unwelcome surprise. In the long run, it's better to be slightly over-insured than dangerously under-insured.

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