Smart Money Moves Homeowners Should Consider in 2020
Saturday, February 22, 2020, 6:00 AM | Leave Comment
Whether you’ve recently purchased a home, considered a refinance, or you’ve owned your home for years, leveraging your home to make smart money moves in 2020 can bring some relief to debt, alleviate stress, and get you back on track financially.
Interest rates are still extremely low, even so far as to drop over the last 3 to 4 months.
Currently, many 15-year mortgages sit between 2.9% and 3.25%, which is still historically low. So, how can homeowners leverage their property or by a property and benefit from low interest rates and a great housing market?
In several housing markets across the country, inventory is down, home prices are up, and several are boasting an extremely balanced market.
This means that were neither necessarily in a buyer’s market or a seller’s market, but there’s a good number of buyers and sellers exchanging homes, completing refinances, and getting into the real estate game.
This is great news for first-time homebuyers as well as those looking to downsize or upgrade their current home.
So how can homeowners and potential buyers make the most of their home purchase or equity in 2020?
Related: Ready to Say Goodbye to Renting and Hello to Buying?
Here are some smart money moves homeowner should consider in 2020.
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Refinance
If you have not refinanced in the last couple of years and your home has gained equity, which most homes have, you may be able to cash in on that equity or change your terms. It really comes down to a numbers game. If you can lower your interest rate by one full percent, it makes sense financially to consider a refinance. But there are several other reasons you might consider a refinance as well.
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Debt reduction. If you have enough equity and can maintain and 80/20 loan to value ratio, meaning that you’ll still have at least 20% equity after the refinance, cashing out some of that equity might alleviate or reduce any credit card debt, car loans, personal loans, or student debt and roll those funds into a new home loan. Chances are that your credit card is gouging you with at least 10% if not 25% interest rates. Rolling that into a 10- or 15-year mortgage with a 3% interest rate, can really save you money over the life of the loan.
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Home improvements. This is another good reason you might want to cash out some of the equity. If you’re struggling to make small repairs here or there when the money comes in, having a large lump sum may allow you to complete the projects that of been on your to do list for years. Maybe you’ll want to improve the house and add value by remodeling a kitchen, bathroom, or adding on another room, addition, deck, or major landscaping. Not only will this improve the home and add value, but when it comes to selling, you’ll be able to charge that much more for an excellent rate of return.
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Lower terms. If you’re currently working with a 30 year mortgage but your income has improved over the years and you can afford a little bit more in a mortgage payment, reducing your terms can save you tens of thousands if not hundreds of thousands of dollars over the life of the loan. Again, if you can reduce your interest rate by a full percentage and dropped down by 10 or 15 years, you might not be paying too much more in a mortgage but it will save you thousands of dollars in the long run.
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Focus on increasing your credit score
Simply by paying off debt your credit score will naturally increase. Remember to pay everything on time including medical bills, homeowner association fees, and anything that has a due date. The quicker you pay these things off and the more available credit you have, the better you’ll look to lenders, which will naturally increase your credit score. Maintaining a credit score of at least 800 means that the skies the limit whenever you do need to take out a loan, refinance, or apply for a credit card.
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Save 3 to 6 months’ worth of income
A great goal for this year would be to try and save at least 3 to 6 months’ worth of expenses in a savings account. If you know that you spend at least $5000 a month in bills, utilities, and housing payments, having at least $15,000 set aside in an easily accessible account such as a savings account alleviates a lot of stress and provide security in case of job loss or other unexpected tragedies. This might be tricky but if you put a little bit aside every single month and not touch it again, you’ll be surprised at how quickly you can build this fund up.
Additional: 5 Ways to Protect Your Credit Score
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Save for retirement
If you haven’t already, now is the time to start putting even as little as $100 away each month in a retirement fund. Talk to your local retirement and financial advisors to find out how much you can afford each month and then have that automatically taken out of your paycheck or your bank account each month. If you already have this withdrawn, consider increasing the amount. Going too far may leave you financially strapped, so run the numbers and see what makes sense. Even increasing your retirement fund by $50 a month can add up in the long run depending on your age and when you retire.
2020 can be the year you get your finances back on track, save for the future, pay off debt, and feel more financially free and secure. Start with these four simple tips, discuss it with your family, and put them into practice for your financial future.
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