As you build equity in your home, you gradually pay off your mortgage, moving toward the date when your home will be paid off in full.
But what are some of the benefits of increasing the amount of equity you own besides getting closer to paying off your mortgage? Following are some benefits that you might not have considered.
Home Buying in Florida
- Remove PMI or MIP. Depending on the type of mortgage you have, you might be paying for private mortgage insurance (PMI) or you might be paying mortgage insurance premiums (MIP). In either case, PMI or MIP is an added expense. MIP is always a requirement when you take out an FHA loan. PMI is a requirement if you take out a conventional loan with a down payment of less than 20%. Once you have increased your equity past 20%, you can request in writing the PMI be removed, and your lender may be willing. Also, once you pass 78% LTV, PMI will automatically go away. If you have an FHA mortgage, whether your MIP will be canceled upon achieving a certain amount of equity or not depends on multiple factors. Regardless, if building up home equity allows you to get rid of your PMI or MIP, that is an excellent financial benefit.
- Increase your savings. As we mentioned in the previously linked blog post, there are people who refer to home equity as a form of “forced savings.” This is pretty accurate, as some people have a very difficult time being disciplined to save money unless they have to do so, for example, by investing in a home. If that describes you, one of the benefits of increasing your home equity is that you are also boosting your savings.
- Borrow against your equity if necessary. Obviously, your home equity is different from cash in that you cannot immediately grab it and use it for another purpose if you need to. But that does not mean that there is no way to utilize the savings that you have built up in your home. There are multiple products which allow you to borrow against your home equity. For example, if what you are looking for is a line of credit rather than a lump sum of cash, a home equity line of credit (HELOC) may be just what you need. If you prefer a lump sum of cash, a home equity loan might be the way to go. And if you are a senior citizen, you can take advantage of the opportunity to apply for a reverse mortgage.
Reverse mortgages offer the following benefits:
- You get to stay in your home while borrowing against your equity.
- You can receive the funds in a form which you find convenient (i.e. a lump sum, a line of credit, or so forth).
- You can use the funds in any way you prefer. Reverse mortgages are without restrictions.
- The balance on the reverse mortgage loan is not due until a maturity event such as the sale of the home or the death of the last borrower.
Have Questions About Home Equity? Call Premier Lending Corp
You now know several benefits of increasing the equity in your home which go beyond paying off your mortgage.
If you have additional questions about home equity or you would like to apply for a reverse mortgage or another type of loan, please give us a call today 954-840-8811. We work with customers in the Davie area and throughout South Florida.