Homeowners can easily get into a comfortable groove year after year by making monthly mortgage payments, auto-renewing homeowner’s insurance, and putting off upgrading appliances and lighting, among other things. But that groove can cost money.
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. In 2020, consider these five New Year’s resolutions geared toward getting you closer to your financial goals.
1. Pay down principal if it makes sense
Since mortgages today generally have low-interest rates, those with more expensive debt should tackle big-ticket loans (like credit cards) first and then 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.
When you make extra payments toward your principal, make sure your lender knows this money should go toward your principal. Otherwise, the payments 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 including applying a lump sum amount to your principal balance; making extra mortgage payments every year; and adding more money (above the minimum amount) to each payment and earmarking those dollars for the principal.
2. Refinance your mortgage for a better rate
If you have an interest rate above 4 percent or 5 percent and aren’t going to sell your home anytime soon, you might want to consider refinancing. Before you refinance, however, make sure the savings outweigh the cost. Borrowers have to pay closing costs, which can range from 2 percent to 4 percent of the home’s value. While you’ll recoup that money in savings over time, many experts recommend avoiding refinances that require more than 18 months to recover the closing costs.
3. Shop around for better insurance rates
Although homeowners can’t avoid property insurance, they can avoid paying more than they need to. In fact, some experts recommend shopping around for insurance on an annual basis if you want to maximize your savings.
A survey by the consumer advocacy group United Policyholders showed that 75 percent of California homeowners who were affected by the 2007 San Bernardino and Riverside county wildfires were underinsured by an average of $240,000.
4. Make your home energy efficient
Homeowners can save money immediately by making energy-efficient tweaks to everything from lighting and windows to solar panels. According to the Department of Energy “widespread use of LED lighting has the greatest potential impact on energy savings in the U.S.” You 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.
5. Don’t neglect small repairs
Leaves gathering around gutters might seem inconsequential, but they can lead to major damage if they’re neglected long enough. In fact, minor problems should be taken care of immediately to save big costs down the road. So, put away some cash for those little repairs and do the work yourself while it’s still manageable. House projects can cost you upwards of $10,000 or more, depending on what you’re having done.
A new roof isn’t cheap. To dampen the financial burden, save as much as you can and don’t outsource work when you don’t need to. Compare savings accounts and find one that has a high return, and then dedicate it to your house repairs fund. This will help you avoid using credit when problems arise.