New Year’s Resolutions have long served as a way to inspire us to grow. It should come as no surprise that there are 5 New Year’s Resolutions for Homeowners to consider.
*use the links below to jump directly to a section of interest
- Refinance Your Mortgage
- Shop Around for Better Insurance Rates
- Pay Down Principal (if it makes sense)
- Make Your Home Energy Efficient
- Be Pro-active with Small Repairs and Regular Maintenance
As winter settles in, it can be easy to fall into a rut in any area of our lives and that includes on the home-front. You make monthly mortgage payments, auto-renew homeowner’s insurance, and put off upgrading to more efficient technology (such as appliances and lighting), among other things. The only thing keeping you company in that rut will be the money you just spent (and could have saved for something more exciting!).
Making the minimum loan payments (while putting extra money in a low interest-bearing savings account) or keeping the same policy for years (without shopping around for more competitive rates) is an easy way to save less and spend more than you should.
A new year is the perfect time to ditch those old moves and learn some easy, new steps that can get you closer to your financial goals in 2021.
Resolution 1: Refinance Your Mortgage
Although every situation is different, typically refinancing your mortgage is recommended if:
- Current interest rates are at least 1% lower than your existing rate
- You plan on staying in your home for another 5 years (give or take)
- You anticipate being approved for the refinance loan [1]
Mortgage rates hit fresh all-time lows more than a dozen times in 2020.
There are still millions of homeowners who will likely benefit from refinancing their mortgage and locking in a lower rate. I figured it was time to “phone a friend” as good ol’ Regis used to say. So I gave local loan officer Josh Cox of Evergreen Home Loans a ring.
Josh mentioned, “There are a lot of components to factor in when deciding on whether or not to move forward with the refinance process.”
Some of those components might be:
“Are you adding months to your loan?”
“Do you plan on staying in your home for more than 5 years?”
“Are you saving enough money to justify the closing cost?”
Above all, “always meet with a trusted Loan Officer to review all the pros and cons of your specific scenario.”
Resolution 2: Shop Around for Better Insurance Rates
Although homeowners can’t avoid property insurance, you can avoid paying more than you need to (or paying for coverage that doesn’t in fact cover everything you need). In fact, some experts suggest that to maximize savings you may just want to shop around for insurance on an annual basis.
Now, this may mean you save by finding the best coverage. For example, we recently shopped around for both our home and auto insurance and discovered we could enjoy superior coverage with $300 of annual savings. $300 more for the ol’ homestead budget sounds like more animals to me! (Please somebody stop me…).
Tim Surber of State Farm (serving Kittitas County and Yakima) broke it down for me recently, “Insurance is designed really to be the foundation of your financial world and meant to rebuild you should something major happen. So with insurance you get what you pay for. If you just want the cheapest option then most likely you will get cheap quality and cheap service.”
Being underinsured can be just as costly or more as paying too much for insurance. Make sure you are re-evaluating your insurance needs on an annual basis.
Tim went on to explain, “[finding] someone that you trust and is willing to give you the honest truth even if it means telling you what you don’t want to hear or even saying they might not be the best at something [is vital]. No one has insurance for when things go right. You have it for when things go wrong, and having an agent that you trust help guide you through the claims process can be a huge benefit and very reassuring.”
Resolution 3: Pay Down Principal (if it makes sense)
Basic economics dictate that borrowers should pay off their highest interest rate debts first. Since mortgages today generally have low interest rates (especially if you have refinanced recently) folks with more expensive debt should tackle those big-ticket loans (like credit cards) first and then hit their mortgage.
However, if you have private mortgage insurance, or PMI, you’ll want to pay down your balance as quickly as possible to the 80 percent equity level to eliminate that monthly PMI payment.
“Even though interest rates are at near-historic lows, pre-pay your mortgage, especially if you did a low-down-payment loan and had to take private mortgage insurance (PMI),” says Ilyce Glink, author of “100 Questions Every First-Time Home Buyer Should Ask.” “PMI is expensive, so paying down principal enough to either refinance your way out of PMI or where the bank can effectively cancel it for you will make your monthly payment significantly smaller.”
When you make extra payments toward your principal, make sure your lender knows this money should go toward your principal, otherwise they might apply it to your next month’s mortgage payment.
Some lenders have options to earmark extra funds in their payment system. If you’re unsure, check with them on how you should proceed.
Ways to prepay your mortgage:
- Apply a lump sum amount to your principal balance.
- Make extra mortgage payments every year.
- Add more money (above the minimum amount) to each payment and earmark those dollars for the principal.
- A mixture of any of these things.
Resolution 4: Make Your Home Energy Efficient
Going greener is here to stay so what can you do to embrace some of these changes at home? Homeowners can save money immediately by making energy-efficient tweaks to everything from lighting and windows to solar panels. In fact, your power provider may even have rebate offers available for certain smart switches.
For example, we recently switched our old school thermostat to a Smart Thermostat and received a $75 rebate (which we quickly put back into our home in the form of home improvements). A win-win for sure!
Another great way to improve your energy use is to switch to LED lgiths. According to the Department of Energy “widespread use of LED lighting has the greatest potential impact on energy savings in the United States.”
Homeowners don’t have to invest thousands of dollars to save money, you can start small by upgrading appliances, installing programmable thermostats or even using smart strips for all electronic devices, recommends Alina Trigub, managing partner at SAMO Financial.
Resolution 5: Be Pro-active with Small Repairs and Regular Maintenance
Maybe it’s just because we are on the wait list for our gutters, but gutter care is top of mind these days. Leaves gathering around gutters might seem inconsequential but if they are neglected long enough, they can lead to major damage.
In fact, minor problems should be taken care of immediately to save big costs down the road. To save money, start budgeting roughly 1-3% of your homes purchase price annually those little repairs and do the work yourself while it’s still manageable.
“By just putting a small amount away each paycheck you can surprise yourself with the extra cash you’ll accumulate,” Reiling says. “Be diligent about it, and track your progress. Online savings accounts can yield higher returns than traditional ones, too, sometimes to the tune of a 1 to 2 percent APY increase.”
Not sure where to start with regular maintenance and repairs? No worries! Here is a Homeowner Maintenance Checklist for easy reference.