Put these resolutions on your list for 2021.
The start of a new year is often when people reflect on the past and set goals. If you’re a homeowner, it’s also a great time to make some financially smart resolutions.
For most people who own a home, that home is their biggest asset — and their mortgage the biggest debt. It makes good sense to include house-related issues as you make your plans for 2021.
Here are four resolutions that just about every homeowner should make this year.
1. Don’t pay more mortgage interest than necessary
Most people who own homes don’t own them free and clear — they get a mortgage loan to fund the purchase. While a mortgage is generally considered “good” debt — since it’s a low-interest loan that allows you to buy an asset that will likely go up in value — it’s still a debt you have to pay. That means using some hard-earned money for interest costs and allocating cash to payments in your monthly budget.
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You don’t want those payments or interest costs to be any higher than necessary. That’s why you should make a resolution in 2021 to avoid paying excess mortgage interest. You might be doing that if you haven’t refinanced recently.
With refinance rates well under 3% for 20-year and 30-year loans and under 2.5% for 15-year loans, almost 20 million Americans could save hundreds of dollars a month by refinancing. If you think you may be one of them, resolve to explore your mortgage loan options to save money in 2021 — and maybe even for decades to come.
2. Don’t raid your equity in most circumstances
Home values have gone up in recent months, leaving many Americans with more equity in their properties. While it may seem like a good idea to tap into this equity with a cash-out refinance loan, a home equity loan, or a home equity line of credit, this is often the wrong financial move.
It’s tempting to take out a low-interest home loan and use some of the equity in your property to pay down other debt, improve your home, or make big purchases. But you take a big risk when you do this. Your home will serve as collateral for the loan, so if you miss payments you could face foreclosure.
Even if you’re confident you won’t default, raiding equity is still a high-risk strategy. If property values fall, you could end up owing more than the property is worth, since you borrowed against an equity amount that’s getting smaller. If you end up needing to sell or you want to refinance in the future, you might not be able to get enough money to pay off your current loan balances in full.
While there are very limited circumstances when borrowing against home equity makes sense, most of us should resolve to avoid this financial move in 2021 — even if rising home values make it seem like a good choice.
3. Avoid over-improving for your neighborhood
With many Americans hunkered down at home for months on end — and with no definite end date for the pandemic — improving your home may seem like the best use for your dollars. After all, if you can’t go anywhere, why not make your house nicer?
While home improvements can make your home more livable and sometimes raise property value, you don’t want to waste money on upgrades you’ll never get paid back for. This is an especially big risk if your improvements result in your home no longer fitting into your neighborhood.
Buyers generally don’t want to pay a premium for a home that’s far nicer than all the surrounding properties. As a result, over-improving for your neighborhood can make it harder to find a buyer to pay your desired price when you sell. Resolve not to put yourself in that position, even if home upgrades seem like fun.
4. Don’t let maintenance tasks fall by the wayside
When you have lots of pressing financial obligations — or many fun things you want to spend money on — it’s tempting to put off fixing that faucet drip or cleaning mold off the roof shingles.
Unfortunately, deferring maintenance on your home can be just as bad as skipping routine vehicle maintenance such as oil changes. If you aren’t keeping your home in top condition, problems that would be simple and inexpensive to fix can quickly become major issues that cost tens of thousands to address.
Resolve not to put off those little tasks in 2021. Instead, make a punch-list of everything that needs to be done and start working through it, or hire someone to do so.
By making sure you’ve got the right mortgage loan, and avoiding mistakes such as raiding your equity or letting deferred maintenance jeopardize your property, you can maximize the odds that homeownership will help you build wealth in 2021. There aren’t a ton of resolutions that can do that.