New Year’s Resolutions for Homeowners
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Setting New Year’s resolutions is a time-honored tradition. People often make resolutions that focus on lifestyle changes — say, joining a gym, eating more healthfully or quitting smoking. The new year can also be a prime time to resolve to get your finances in order. If you are a homeowner, there are specific options you may want to consider as you work to take control of your finances, including making extra mortgage payments, refinancing your home and working toward energy efficiency.
Of course, you don’t have to start working on your resolutions on the first day of January — the first few months of the year are a great time to set your intentions (in fact, you can really make these resolutions at any time of the year). Here are some goals for homeowners to consider for a fresh start.
Start an emergency fund
A universal truth of homeownership is that something important is bound to break at the very worst time. And when you own your home, calling the landlord to dispatch a repair person is not an option. It’s all on you to get the repairs done, and you must pay from your own pocket. An emergency fund that is earmarked for home repairs or seasonal spikes in utility bills could help you avoid adding debt to your credit card or falling behind on your other financial commitments.
To start, consider setting aside a small amount from each paycheck to put in a savings account that’s not easily accessible — you don’t want to be tempted to raid the account for non-emergency needs. This could be accomplished by opening a shorter-term certificate of deposit (CD), which may have higher interest rates than many savings accounts and will typically issue penalties for withdrawal before the maturity date. CD terms can be as low as six months.
Credit unions may offer “holiday” savings clubs that allow deposits at will like a regular savings account but have penalties for withdrawals before a designated date (often early fall to align with the start of holiday shopping).
Another way to keep money separate is by diverting some of your direct deposit paycheck to another account set aside for this purpose. This can be part of an “out of sight, out of mind” strategy. You might consider a high-yield savings account, which may feature higher rates when provided by online financial institutions compared to brick-and-mortar banks, according to a recent LendingTree study.
Make extra monthly payments on your mortgage
This practice can help you pay down your mortgage quicker, thus increasing the amount of equity you have in your home. This could come in handy down the road when you’re ready for home improvement or remodeling projects.
Your monthly mortgage payment typically goes toward interest, homeowners insurance and real estate taxes (if those are rolled into your monthly payments) and, finally, the principal of your loan. But any extra payments during the month go directly to paying down principal, reducing the overall balance and leading to an earlier payoff, which can potentially save you thousands in interest over the life of the loan. If the value of your home stays the same or increases, you could also end up with a good amount of equity, thanks to these extra payments. Be sure to tell your lender you want the additional payments applied to the principal balance versus the following month’s mortgage payment.
Also, if this is one of your New Year’s resolutions, make sure your mortgage loans don’t have a prepayment penalty. This shouldn’t be an issue for most homeowners unless they plan to pay off a mortgage within three to five years, according to the Consumer Financial Protection Bureau. Read the fine print on your mortgage paperwork to ensure your mortgage terms don’t include a prepayment penalty clause.
Review your homeowners insurance options
It’s easy to stick with your longtime insurer, as policies typically renew automatically each year unless your insurer decides to cancel. But is your current insurance still doing the job? Consider getting price quotes from different insurers and examining the level of coverage offered, deductible amounts and potential discounts for age, affinity group memberships and multiple policies owned. You might find that it’s time to make a change. You can compare homeowners insurance options here.
Consider home warranty insurance
Homeowners who don’t already have a home warranty contract can purchase one from a company offering annual contracts that cover the costs of repair or replacement of major appliances. It might seem like an unneeded expense at first, but you can think of it as another investment that may pay long-term dividends.
Stephanie Barr, a realtor based in Dayton, Ohio, recalls a first-time homebuyer whose furnace quit working just three months after buying a condo. Because she had purchased a home warranty contract, the contractor replaced the entire unit for the $75 service call fee.
“It’s definitely something buyers should look into while starting the buying process,” Barr said. “It’s also a great opportunity for a seller to market the home for sale offering a home warranty. It’s a little extra added piece that can comfort a buyer if they are worried about the age of some of the mechanicals in the home.”
Consider refinancing for better interest rates or a shorter-term loan
Perhaps you initially took out a 30-year mortgage but now have the income to make larger payments and want to pay off your home sooner. Consider refinancing to a 20- or 15-year mortgage. You may also choose to refinance with the same term but lower interest rates or to convert an adjustable-rate mortgage into a fixed-rate option. If the length or rate terms of a potential new mortgage are more favorable than for your existing loan, you could find yourself saving in the long run.
You may also consider a cash-out refinance to get money from your home’s equity.
Plan a remodeling project
If you have equity in your home, it may now be easier for you to finance that home remodeling project you’ve been thinking about. Perhaps it’s time to redo the kitchen, the bedroom or the bathrooms? If you are looking into a remodel, you should first calculate the costs of materials and labor, then think about a plan to finance it all.
You may consider a home equity loan or home equity line of credit to fund your remodel. Talk with your lender about the best options for your circumstances. Also look into local, state and federal options that could fit your needs. The Federal Housing Administration offers a Title I loan for low- and moderate-income homeowners who don’t have the equity needed to complete a remodeling project, and the U.S. Department of Housing and Urban Development (HUD)’s state offices can provide more information on options for residents. Check your city and county government housing departments to see if you qualify for local programs.
Look into your property tax assessment
You should closely read that annual property tax assessment letter you get in the mail from your local municipality. You might wonder about a jump in numbers this year and think your property tax is too high. If so, consider an appeal.
You’ll need to see if your municipality has a deadline for appeals each year and, if so, be prepared to make your case on time. Most tax assessment boards have a form you can file online or in person, and you’ll be expected to explain why you believe your home’s value is different from that determined by the assessor. This can be done by checking for errors in the assessor’s description of your home or by asserting that comparable homes in your neighborhood sold for less than the tax assessor’s appraised market value. Documents that include sales records for your area, photos and other evidence to bolster your claims can only help your case.
The board will evaluate your claim — a process that could take a few months — and if it rules in your favor, you might get your assessment adjusted downward, which could be a real money saver.
Look into energy-efficiency savings
A typical American family spends $2,000 on energy bills each year, according to the U.S. Department of Energy, with a good portion of that wasted through old appliances, outdated heating and cooling systems and leaky windows and ducts. The federal department offers a do-it-yourself guide to easy projects around the home that can increase energy efficiency, along with other tips on weatherizing your home, improving laundry performance and lowering bills. Download an energy-saving guide here for a whole list of options.
The start of a new year is a great time to make resolutions for home savings, although you can really set these intentions at any time of the year. From refinancing for a better interest rate to looking into energy-efficient savings and making extra mortgage payments, resolutions made one year may save you thousands of dollars over the years to come.