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Rising insurance costs and the mortgage affordability crisis: How lenders can help

By: Matt Dowd | VP of Product Management, ICE Mortgage Technology

Dec. 9, 2025

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In today’s housing market, affordability is no longer just about interest rates. While mortgage principal, interest and property taxes have all increased in recent years, property insurance costs have surged at a much faster pace, becoming the fastest-growing portion of mortgage payments for homeowners. This trend is reshaping the financial landscape for borrowers and presenting both challenges and opportunities for mortgage lenders.

The impact of property insurance on affordability

American homeowners are spending 29.7% of their monthly income on mortgage payments, according to the December 2025 Mortgage Monitor report. That’s nearly double the 16% recorded in January 2013. Meanwhile, property insurance costs have risen 4.9% in first half of 2025 alone, 11.3% annually, and nearly 70% over the past five and a half years.

The property insurance costs surge has disproportionately affected homeowners in flood-prone and climate-risk zones, such as hurricane corridors and wildfire-prone regions. These homeowners face higher premiums, fewer coverage options and greater financial strain, especially as the cost of food, energy and other necessities continues to climb.

What’s driving property insurance inflation?

According to the September 2025 Mortgage Monitor report, when breaking down the data, average property insurance payments have risen more than twice as fast as increases in principle (+23%), interest (+27%) and property taxes (+27%) since 2019. The average single-family mortgage holder now pays nearly $2,370 annually for property insurance, which accounts for a record 9.6% average of total mortgage-related expenses.

Several factors are fueling this inflation:

  • Rising home values: From an average of $371,000 in 2020 to $512,800 by Q2 2025, higher property values require more coverage, driving up premiums.
  • Environmental hazards: Natural disasters, such as hurricanes, wildfires and floods, have caused catastrophic damage, increased claims and prompted insurers to raise rates or withdraw from high-risk markets.
  • State regulations: In states where insurers have left due to regulatory constraints, reduced competition and elevated risk have also contributed to higher premiums.

How lenders can help borrowers navigate rising costs

As property insurance and tax burdens grow, lenders must evolve from transactional entities to proactive partners to help borrowers stay in their homes. Here’s how:

  • Leverage integrated technology for real-time insights: Lenders need integrated mortgage platforms that combine origination, servicing and real-time data to track changes in monthly payments and spot signs of borrower distress. ICE is currently connecting its core systems, Encompass® and MSP®, so loan data can flow seamlessly throughout the entire process.
  • Automate borrower identification and prioritize outreach: Advanced analytics can help lenders identify borrowers that could be at risk. ICE Dialer Optimizer combines risk ranking—powered by behavioral models—with payment history to facilitate timely collection and counseling strategies. This approach gives lenders the opportunity to offer tailored solutions to borrowers before they fall behind.
  • Support borrowers with self-service tools: Modern servicing apps like ICE Servicing Digital, which allow borrowers to engage with their lender and shop for insurance, compare deductible options, and potentially find more affordable coverage – all within their loan management portal.
  • Facilitate insurance shopping and coverage optimization: By connecting borrowers with insurers through embedded platforms and Application Programming Interfaces (APIs), lenders can help homeowners optimize coverage and possibly reduce premiums. This can benefit both parties: borrowers may be able to save money, which would also allow lenders to reduce the risk of default and servicing costs.

Responding to natural disasters

Natural disasters can accelerate insurance costs and plunge borrowers into sudden financial distress. Lenders must be equipped to respond quickly and compassionately through:

  • Disaster identification: Using ICE Climate Risk Data and disaster tracking tools, lenders can survey their portfolios to identify loans within high-risk areas or be alerted in near real-time to which properties may have been impacted by a natural disaster so they can quickly communicate with the right borrowers.
  • Proactive Outreach: Once identified, servicers can reach out to affected borrowers with information on relief programs they may be eligible for, including payment options, forbearance programs and rebuilding assistance. The ICE Loss Mitigation solution integrates with MSP to provide servicers with the tools they need to support distressed homeowners, all while streamlining the process and reducing risk.
  • Compliance and Coordination: Servicers must also navigate GSE guidelines and coordinate with insurance adjusters for timely evaluations and disbursements. MSP is continually enhanced to address new requirements and implementation deadlines, reducing risks and supporting client compliance management.

ICE Servicing Digital also allows borrowers to initiate assistance requests 24/7 using their smartphones, bypassing call queues and accelerating recovery. This responsiveness can improve outcomes and demonstrate exceptional customer service during critical moments.

At the same time, servicers should be prepared to thoughtfully and efficiently serve customers who feel more comfortable speaking to customer service agents over the phone following a crisis. ICE Customer Service solution was designed specifically for servicers and provides agents with tools to quickly address borrower questions and resolve issues in real-time and often in one call.

Rethinking affordability in a changing landscape

Affordability today must account for more than just principal and interest. Lenders must adapt their underwriting models, servicing strategies and borrower engagement tools to reflect this reality. Data and connectivity are critical.

The rise in property insurance costs is not a temporary trend – it’s a structural shift driven by climate events, regulatory dynamics and market volatility. Lenders cannot control these forces, but they can help borrowers navigate them.

By investing in integrated technology, proactive outreach, and personalized support, lenders can help reduce defaults, preserve homeownership and build lasting relationships. The time to act is now, because helping borrowers weather the storm is not just good business – it’s the foundation of the American Dream.

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