Until recently, home insurance was more of a formality for a buyer: get confirmation for the notary, put the lender’s name on the policy—and move on to finalizing the mortgage. Now the situation is changing. As the number of extreme weather events rises, insurance is becoming not just an additional expense, but a factor that can affect the very ability to finance a real estate purchase.
In other words, one day the obstacle to buying may not be income, credit history, or the size of the down payment. It may be the weather.
In brief
- Home insurance is increasingly becoming an important condition for mortgage financing.
- Floods, downpours, and other extreme weather events increase insurance risks and policy costs.
- Some types of coverage may come with a high deductible or be unavailable for a specific property altogether.
- Elevated climate risk can affect not only insurance, but also the ability to get a mortgage and to sell the home in the future.
- Buyers are advised to check whether full insurance coverage is available for a property before closing the deal.
What is happening with home insurance?
A telling case happened this summer in the western part of Montreal.
On June 20, an enormous amount of precipitation fell on certain areas of the city, including Pierrefonds-Roxboro, in a short period of time—around 150–170 millimeters in about two hours.
Streets turned into streams of water, basements were flooded, and the city’s drainage systems faced a load they were not designed for.
For local residents, this was no longer abstract statistics from the news. Extreme weather directly affected their homes.
A few weeks later, a buyer considering a home in that area ran into an unexpected obstacle. Financially, his mortgage application looked perfectly solid: normal income, good credit history, a sufficient down payment, and acceptable debt ratios.
But the lender imposed an additional requirement: it was necessary to confirm that the property being purchased could be properly insured against water-related risks, including overland flooding and sewer backup.
The mortgage issue unexpectedly turned into an insurance one.
Why does the bank care about insurance?
There is a simple principle of mortgage lending: the bank finances not only the buyer, but also the property that serves as collateral for the loan.
If a home is in an area of elevated risk of serious damage, and insuring that risk becomes expensive, limited, or unavailable, the lender begins to treat the property with greater caution.
That is entirely understandable.
But today the behavior of insurers themselves is changing as well. The reason is the rising cost of damage from extreme weather events.
In 2024, insured losses from extreme weather in Canada reached approximately $8.5 billion, setting a new record. That is almost three times the previous year’s figure.
Another indicator helps illustrate the scale of the problem: the average cost to restore a flooded basement in Canada can exceed $40,000.
So it is no surprise that insurers are taking a closer look at the condition of the drainage system, the presence of a backwater valve, the lot’s topography, the history of flooding, and even the specific postal code.
The same house—an entirely different risk
Perhaps the most important point is that a house may not change physically, while its insurance profile does.
The same lot.
The same foundation structure.
The same street.
The same address.
But in five years, the insurance risk may be assessed completely differently.
The situation can be influenced by a new flood-zone map, several severe weather events in the area, or a change in insurers’ risk-assessment methodology.
And the danger exists not only for homes located directly near water.
Problems can arise due to:
- overland runoff;
- overloaded sewer systems;
- water-saturated soil;
- topographic features;
- insufficient capacity of municipal infrastructure.
If 150 millimeters of precipitation falls within a few hours, even an area that was previously considered relatively safe can face serious problems.
From insurance—to the mortgage, and then to the home’s value
The chain here can be fairly straightforward.
Climate risk increases → insurance becomes more expensive → some types of coverage become limited → the property is harder to insure → the lender starts asking additional questions → it becomes harder for the buyer to obtain financing.
And then another question arises—the value of the property.
A home that fewer companies are willing to insure, or that requires significantly more expensive coverage, automatically becomes less accessible to potential buyers.
Which means the pool of potential buyers narrows.
In the long term, this can also affect the market value of such a property.
Should you check insurance before buying?
Until recently, a buyer typically thought about three main steps: a home inspection, getting a mortgage, and, if necessary, selling their own home.
Today it is worth adding one more item to that list—checking whether the property is insurable.
And it is best to do this before the buyer makes a final decision to purchase.
It is enough to contact an insurer and ask:
Can this address be insured against water-related damage, sewer backup, and flooding—and how much will it cost?
The answer may be more important than it seems.
You may find out, for example, that the policy will cost several thousand dollars a year more than usual. Or that there is a very high deductible. Or that a certain risk is not covered at all.
And then the buyer has the opportunity to make a decision before being bound by the terms of the deal.
What matters more: the rate or the insurance?
Buyers often spend a lot of time trying to get the lowest possible mortgage rate.
Suppose we are talking about a difference of 0.1 percentage points on a $500,000 mortgage. The interest savings in the first year would be about $500.
Against that backdrop, an extra few thousand dollars in annual insurance costs can completely wipe out such savings.
And if the required insurance coverage cannot be obtained at all, the question of whether the buyer managed to reduce the mortgage rate loses all meaning.
How is climate changing the real estate market?
For decades, the main factors determining the price and affordability of housing were relatively clear: location, the condition of the home, the buyer’s income, credit history, interest rates, and the overall market situation.
Now another factor is gradually being added—climate risk.
And this is not about political or ideological debates.
This is about a very concrete financial metric.
If a home becomes too risky for an insurance company, it may become riskier for a lender as well.
And if a property becomes harder to insure and finance, the pool of potential buyers shrinks.
What does this mean for buyers?
Buying a home is a decision for decades. So it is no longer enough for a buyer to ask how much the property costs and what mortgage rate they are being offered.
It makes sense to find out in advance:
- whether the home is in a potential flood zone;
- whether there have been serious flooding incidents in the area;
- how the water drainage system is set up;
- whether there is a backwater valve;
- what the property’s claims history is, if that information is available;
- what types of damage the insurance policy covers;
- what the deductible is;
- how much the insurance will cost;
- whether the lender imposes additional insurance requirements.
This is another reason why a professional property inspection is becoming increasingly important. But a technical inspection of the house itself may no longer be enough: it is necessary to consider the surrounding infrastructure and the specifics of the property’s location.
Frequently asked questions
Can a bank refuse a mortgage because of insurance problems?
Yes, the absence of the required insurance coverage can be an obstacle to mortgage financing, since the property being purchased is the collateral for the loan.
Why can home insurance become more expensive?
The cost is influenced by risk assessment, claims history, the likelihood of flooding, the characteristics of the lot and local infrastructure, as well as the overall situation with losses from extreme weather events.
Do you have to live near a river to face flood risk?
No. Flooding can occur due to heavy overland runoff, sewer overflow, and water-saturated soil.
Can changes in climate risk affect a home’s value?
Potentially yes. If a property becomes more expensive or harder to insure, the number of interested buyers may decrease, which can affect its attractiveness and value.
When should you check insurability?
Ideally, do it as early as possible—before the buyer is finally bound by the terms of the deal.
A unique comment
The real estate market is gradually learning to account for a factor that until recently was practically absent from a buyer’s standard checklist.
This is not about whether climate will become “important” for the housing market in the future. It is already influencing it—through insurance companies, repair costs, lenders’ requirements, and risk assessment.
And here a new sequence appears that buyers should keep in mind:
it’s not enough to buy a home—you must be able to insure it, finance it, and later sell it.
So before falling in love with a beautiful house, it is worth finding out not only the size of the monthly mortgage payment, but also how calmly this house handles the rain.
It is quite possible that in the future the question “Can this home be insured?” will become almost as important as “How much does it cost?”
