There are dozens of ways to make your housing investment pay off faster and at a greater return. In some cases, a small extra outlay may be required, sometimes each and every month, but the added expense is often pocket change when compared to the savings that are available.
If you double up on the principal portion of your house payment every month, for example, you can cut 15 years off your 30-year mortgage and save half the interest you would otherwise have paid. And if you hire someone to perform an energy audit, you could pinpoint trouble spots that, when corrected, could save on your utility bills.
Saving on the mortgage
Your mortgage is typically your largest monthly expense. Therefore, it offers perhaps the largest single source of potential savings.
– Make extra payments. Every time you make an extra principal payment, you shorten your loan by a month and save a month’s worth of interest.
Any formula works. One extra full principal and interest payment a year will cut a 30-year loan to about 17 years, and adding the next month’s principal payment to this month’s total payment will shear the loan almost exactly in half.
Here’s an example: On a 30-year, $200,000 mortgage at 6 percent, the monthly payment for principal and interest is $1,199.10. But if you up the ante by $100 a month, you’ll pay the loan off in 24 years and save $49,476.40 in interest. Throw another $100 at your loan every month and you’ll pay it off in under 21 years, saving nearly $80,000 in interest.
Make sure you tell the lender the extra money is to be credited to principal. Also, keep your own records and check once a year to be certain that the lender has followed your instructions.
– Get rid of PMI. If you make less than a 20 percent down payment, chances are good you are paying private mortgage insurance, an amount tagged on to your house payment every month to protect the lender in case you default.
By law, PMI must be canceled automatically when the loan balance reaches 78 percent of your home’s original value. But under some lenders’ rules, you can drop coverage when the balance falls to 80 percent of current value (if the loan is at least five years old) or 75 percent of current value (if it is between 24 and 60 months old).
Given the speed at which housing values have appreciated lately, you may be able to jettison coverage sooner rather than later. Say, you put 3 percent down on a $150,000 loan. If you do nothing, PMI coverage will terminate after 12 years. If values are rising a reasonable 5 percent a year, you could build up equity fast enough under the “current value” rule to cancel after just 40 months. And if prices rise 10 percent a year, you could be out in only 24 months.
– Refinance. Chances are good you’ve already refinanced your house to take advantage of the lowest mortgage rates in 40 years. And with rates starting back up again, it is a good thing you acted when you did.
But there are other reasons to refinance besides lowering your house payment. One is to get rid of PMI; another is to shorten your loan term.
If you switch from a 30-year to a 15-year term, for example, you will be saving years of interest payments. The interest rate on a 15-year loan is typically slightly less than that on a 30-year mortgage, but because the balance pays down twice as fast, the payment is higher.
– Minimize your taxes. This isn’t really a mortgage expense, but because most folks pay one-12th of their property taxes each month along with their mortgages, it goes here. Why? Because if your place is not assessed properly, you could be paying more than you should. Moreover, many who protest their assessment are usually successful.
First, make sure the tax collector has an accurate description of your house. Next, make sure you are being charged the proper rate. Then, check your assessment against three similar properties in your immediate vicinity. Look for houses as close to yours as possible in size, model, layout, improvements and finishes that are paying less than you.
Paring insurance costs
Most homeowners have all types of insurance — hazard insurance for their homes, auto insurance for their vehicles and business insurance if they work from their houses. And therein lies another source of potential savings.
– Check for discounts. It is fairly common knowledge that you can lower your premiums by raising your deductible. But are you aware of the numerous discounts insurers offer?
For example, it may be possible to lower your costs by 5 percent to 15 percent by buying all your policies from the same company. Price breaks also are available if you have been with the same firm for six years or more, if you are a senior, if you are a non-smoker, or if you have a smoke detector, burglar alarm or deadbolt lock.
Shop hard, though. While most companies offer discounts, they all do not offer the same ones. And while you’re at it, shop rates, too. Some big savings may be available by switching carriers.
– Review your coverage. Your home should be insured for what it would cost to rebuild, not its appraised or assessed value. So, if your lender required 100 percent coverage when you took out your loan, cut back as soon as possible. Why? Because the land on which the house is built is not at risk.
– Avoid nuisance claims. The more claims, the more likely a carrier will cancel your policy. So use your coverage the way it was meant, to protect against losses from which you cannot recover on your own.
Utility savings
More household savings are possible in the way you operate and maintain your property.
– Check your bills. Once a month, look for hidden fees or charges you do not understand on your power, water, phone and cable bills.
Also check the rates you are paying. Often they are not as low as they could or should be. Utility companies do not automatically bill residences at the lowest rate, so it is your responsibility to request it.
– Do an energy audit. For a nominal fee, or perhaps without charge, most utility companies will be happy to conduct an energy audit on your home, looking for instances where you are spending more than necessary to heat and cool the house. Private firms will do the same, but the tariff is somewhat higher.
