Do you have a 2008 Homeowners Resolution?

One of the best Beginning-Of-The-Year Resolutions homeowners can make is to eliminate expenses that are unnecessary and have no benefit. This is a tall order for many of us, with implications ranging from how you finance your mortgage to the energy efficiency of your home. Nevertheless it’s a very worthwhile exercise which will affect your current and future lifestyle. Many have already made some of the following 2008 New Years Resolutions for Homeowners, but few probably addressed them all.

Resolution #1: I will get my home finances in order.
Despite all the disaster stories about the mortgage meltdown, mortgage interest rates are relatively low and widely available to creditworthy homeowners. This is therefore a good time to review how you are financing your home. You may be able to save money, reduce financial risks, improve your financial status and/or use the opportunity to incorporate home financing in your long term financial planning. This is especially true if you currently have an adjustable rate mortgage or a line of credit attached to your home.

If you have an older mortgage, there’s a possibility you can get a lower interest rate - and therefore lower monthly payments - if you refinance your mortgage today. Since most of your mortgage payments in the early years consist of interest, if you use your house for part of your business, you will also end up with a larger mortgage interest tax deduction with a new mortgage. If you don’t take any cash out and your new rate is lower, your actual monthly payments will also be lower. Paying less money while getting a bigger tax deduction is a good proposition.

If you have substantial home equity when you refinance your mortgage or add a line of credit, you can take cash out for worthy uses such as remodeling. A big plus compared to using your credit card to pay for remodeling costs, is that home mortgages usually have a lower interest rate than that of credit cards.

Resolution #2: Banish Fear
Many homeowners have decided to put off the consideration of their next home purchase because of concerns about the market, but in many cases those fears are unwarranted. If you’re selling and buying in the same market, it doesn’t make any difference. The most important consideration is making sure the new, potentially higher interest payments are affordable for you. If you want to move in 2008 you should take a closer look, because this year could be an excellent time to buy a home.

With uncertainty in the stock market and the economy of our southern neighbour, this is certainly no time to push the limits of your financing ability. However, many homeowners are in a strong financial position, thanks to good savings habits and accumulated home equity. While they need to make sure they keep plenty of liquid assets against the risk of a recession, in fact many homeowners have more than sufficient liquid assets for that purpose and are in a position to buy a bigger home if they wish to.

The direction of home values is of little consequence if you plan to stay in the same area. According to a recent Realtor survey, the median moving distance in 2006 was 13 miles. This means that if the value of your current home has changed, so did the value of the home you’ll be buying if you stay in the same area. The future outlook for home values will also be about the same, so the direction of home values will have relatively little consequence for most home buyers.

Mortgages are widely available at attractive rates for the majority of home buyers, who have excellent credit histories, and a good financial profile.

The bottom line is that for many, if not most homeowners, 2008 is a great time to buy a home, and the current stock market havoc should not stop you from looking into it.

Resolution #3: I will increase my saving and reduce or eliminate high interest loans.
Refinancing your mortgage is often the first step in this process (see resolution #1). Next, if at all possible make the full tax deductible annual contribution to your RRSP.

In order to pay their mortgage off sooner, many homeowners make additional payments above the required monthly amount to their mortgage lender. Most lenders allow you to increase your bi-weekly or monthly payments by 10-20% each year. TD Canada Trust allows borrowers to increase their payment by up to 100% every year.

Make sure you invest in mutual funds or stocks with consistently good performance records. For example the Lipper Reports tracks mutual fund performance by category (i.e. large caps, energy, etc.) over 1, 3, 5, and sometimes even 10 years. If there are 100 funds in that category, invest only in those that are consistently in the top quartile (which would be the top 25 if there are 100 funds in the category) over each of those periods, and you should do pretty well. Review your investments annually (or even better quarterly) against that standard to make sure they are maintaining their track record.

Check your credit report at least annually to make sure that no one else is using your Social Insurance Number. More information is available online at www.Equifax.ca .

Resolution #4: I will review my homeowners and other insurance to make sure I’m adequately protected.
Review your coverage with your agent to make sure you have enough insurance. The insured value of your home should reflect its current replacement value, including any additions or improvements, as well as the value of its contents.

Make sure you are covering all important circumstances. Insurance against flooding may not cover internal drain pipe backups or wind damage for example, and many insurers won’t provide flood insurance. Many policies also have standard fixed limits on certain types of contents (jewelry and furs, antiques, cameras, electronics, etc.) so you may need an additional “floater” policy to fully insure your home’s contents.

Life insurance needs change throughout your life. They are highest for young couples with children, far less for empty nesters with enough savings for their retirement. Depending on your situation you may be able to cut back on insurance costs. Remember to take photos of all your belongings and store those digital shots off premises. Get up-to-date appraisals on all collector items of value.

Resolution #5: I will reduce my home’s energy consumption.
There are many ways to reduce your home energy costs. The American Homeowners Foundation has a free home energy audit. All it takes is a ten minute tour of your home with the audit questionnaire and a few simple tools you probably already have, and you will likely find numerous ways to reduce both your energy costs and global warming. For a free copy, e-mail AHF@AmericanHomeowners.org , and put “Free Energy Audit” in the subject line. They will e-mail you back the free home energy audit.

Among some of the “no-brainers” are replacing old manual thermostats with programmable thermostats, which typically will pay back their costs in several months, and replace standard light bulbs with compact fluorescent bulbs, which have dropped in cost recently. Also make sure your exposed hot-water pipes are insulated, furnace filters are changed regularly, leaky faucets are repaired, and run only full loads in the dishwasher and clothes dryer.

Resolution #6: I will look for economical ways to increase the value and livability of my home.
If you are like most, you probably have a list of things that need to be fixed or upgraded in your home, and a remodeling project may be on the list as well. Many of the things on the list may have been on the list for many weeks, if not months. You may have noticed that those jobs seldom get done by themselves, and some conditions get worse over time.

Start by putting your home’s “to do” list in priority order. Put on top the kinds of repairs that can cost more if neglected (a leaky roof for example), or which will continue to cost you money until they are fixed (a broken refrigerator seal, leaky faucet or toilet, etc.). Usually the parts are the least expensive part of a repair. If you are at all handy force yourself to take the time to fix things on your own.

If you’re not handy or won’t have the time to fix everything in the next few months call a handyman or specialist for the things you can’t handle. A good independent handyman should be able to do most things you need at a far lower rate than a plumber would charge to fix your toilet or an electrician would charge to fix a broken appliance. Ask your neighbors (or call out office at 416-691-8118) for recommendations of good handymen, and find out their hourly rates..

More extensive remodeling projects will probably require a remodeling contractor. Many projects can return 100% of the investment when you eventually sell your home, and improve your lifestyle in the meantime.

The best candidates for a good return on your remodeling investment are things like updating badly dated kitchens or baths, or adding a second bathroom in a one bath home. Don’t over improve to where your home’s value substantially exceeds that of the neighbors or you’ll have trouble recouping your investment when you eventually sell. You can also help keep costs down if you are willing to do some of the easier finish work yourself, like painting or trim work.

Check the references of remodeling contractors thoroughly. To avoid disputes always use a comprehensive contract when you hire a remodeling contractor.

Resolution #7: Be cautious with your finances.
No year is a good year to become over extended. Whatever else you do, make sure that you have enough cash or liquid reserves to weather unforeseen events, such as company layoffs or family illnesses. If that means waiting until next year to buy a new car, so be it. Prices and interest rates may be a little higher or lower next year, but most likely your savings will be higher. A little wait to avoid a significant financial risk is well worth it.