If you’ve been paying attention, you’re probably already aware that if you’ve worked hard and have paid off your mortgage debt, you could stand to see significantly discounted homeowners quotes from various insurers. But losing that discount could be as easy as applying for a home equity line of credit.
The reasons are simple. Getting a line of credit that’s secured against your house is pretty much the same as having a mortgage, especially in the eyes of homeowners insurance providers. Essentially, it’s a lien against your home—something that doesn’t usually drive up insurance costs, but could cause you to lose certain discounts like mortgage-free rates.
So what approach should you take if you’ve paid off your home, take advantage of the mortgage-free discount, but need a loan to pay for a home renovation project? Here are a couple of options.
- Find house insurance elsewhere: This is certainly always an option. But while taking your business to another insurance company might send your previous insurer a message, you’re not likely to have any better luck with another company. Insurers typically structure their discounts in the same way, and the bottom line is that by using your house as collateral for a loan, you’re setting yourself up to pay higher insurance rates.
- Apply for an unsecured loan: By applying for an unsecured loan to pay for your renovation project, you won’t be placing a lien against your home, and therefore won’t lose your mortgage-free insurance discount. But whether or not you’re saving money depends on the insurance rate that you’re able to secure on the loan versus the amount of the discount you’re getting on your home insurance.
There are a good number of variables that go into how much money you pay for your home insurance. In order to be certain that you’re never paying too much for it, shop around regularly and compare homeowners quotes from various insurance providers.