Ownership of a home is one of the pillars of the American Dream, but for many people it can become a nightmare in terms of financial stress. Mortgage brokers and financial advisors often recommend a 36 percent debt-to-income ratio as it relates to monthly household payments, and the reason for this recommendation is that it leaves room for savings. Being strapped for cash while carrying a mortgage is a risky proposition because it increases the potential for default and foreclosure. Here are six money-saving tips for mortgage borrowers, brought to you by trusted financial advisor Jan Gleisner.
1. Start Saving Immediately
Many first-time homebuyers make the mistake of spending too much too soon after moving in. What they should be doing instead is postponing expenses and focusing on saving. Getting into a frugal mentality early on is essential.
2. Generate More Income
With a low unemployment rate, part-time and casual jobs are easier to find. Saving becomes easier when more than one person works in your household, particularly if a commitment is made to generate additional income that can be deposited into a savings pool.
3. Review Insurance Coverage
Even when your mortgage servicing bank handles your insurance along with property taxes and homeowners association fees in escrow, you are still responsible for selecting the insurer and desired coverage. If the bank forces the placement of a policy on your behalf, you may end up with insufficient coverage and higher premiums. Plus, a high deductible may wipe out your savings. Contact your insurance agent to figure out the best options to save on all your policies.
4. Become Energy Efficient
Investing in a smart thermostat and LED lightbulbs will cut down on your monthly electrical bills, and similar savings can be achieved with proper insulation, natural ventilation, and backyard solar panels that power small appliances during the daytime. Your water heater does not have to be set higher than 115 degrees Fahrenheit, and you may be able to program it so its heating elements only work at night or when the temperature falls below a certain level.
5. Refinance Your Mortgage
While refinancing may be difficult in 2018 due to economic forecasts that signal interest rates rising in the future, you should still shop around for a mortgage that reduces your monthly obligations. Keep in mind property values in Southern California are on the rise, which means you may have room to refinance. If you plan on selling in a few years, you may want to switch to an interest-only mortgage for the time being.
6. Stick to a Budget
It’s almost impossible to put away money without having a budget to guide your spending. The first financial goal of your budget should be to save up three months’ worth of household expenses for emergency reserves, which may require cutting back on leisurely expenses and could take you six or more months.
If you have a mortgage to pay and you’re having difficulty managing your finances, you can benefit from the assistance of a professional financial planner. San Diego homeowners should get in touch with Jan Gleisner today to find out how they can better manage their money.