Insurance: The inequalities of Government

insurance and riskIn order to get a SBA Home Loan (or Business) if you are in a flood plain, you are required to obtain $250,000 of flood insurance, whether your loan is for $5,000, $75,000 or $1.2M.

That costs approximately $2000 per year for structure only (not contents) in flood plain “A”.

So if you qualified for a $50,000 home loan at 1.5% for 10 years, the effective interest is slightly over 40%. Business loans start at 4% and are for 20 years. So that same $50,000 loan has an effective interest rate of 80%.

Some may say you get a benefit from the insurance, so discount the effective rate by the amount of insurance that covers the loan, and if your loan is less than $250,000 you’re still overpaying!

Think about it – I’d say that’s crazy!