Understanding home equity and how you can use it is important for making the most of your experience as a homeowner. You can use it to pay off debt, pay for college, make improvements on your home, remove private mortgage insurance, and more.
What is Home Equity?
Home equity is the difference between what your home is worth and what you still owe the lender. In other words, home equity is the percentage of your home that you actually own. You build equity as you reduce the principal on your loan by making payments on your home. Home equity can also grow when your home’s value increases.
What Can You Do with Your Home Equity?
There are many reasons you would want to tap into your equity and many advantages you can enjoy when you do so.
You can use cash from your home equity to pay off other bills such as credit cards, auto loans, or personal loans. This can help you save money if your mortgage interest rate is lower than the interest rates on those other loans. This also means you’ll have just one debt payment instead of multiple bills.
If you don’t have extra cash available to make home improvements, you can use your home equity to finance renovations. This way, you’ll be funding those renovations with the interest rate of your mortgage instead of using a credit card or personal loan with higher interest rates.
Pay for College Tuition
If you need to borrow money for college tuition or other college expenses like books, using your home equity can be a great way to finance these costs. Because student loans may not be the option with the lowest interest rate, using your home equity may be able to help you save some money. You can also use your home equity to pay off student loans you already have.
Remove Mortgage Insurance
If your mortgage required private mortgage insurance (PMI), you might be eager to cancel it. With a conventional loan, your PMI is canceled automatically as soon as you earn 22% equity, but you can request a cancellation at 20% equity. So, if you’re looking to stop paying for PMI, building equity is a great way to cancel it.
Want to learn more about your options as you build home equity? Contact us today to find out how we can help you achieve your goals.