Updated By Craig Berry
The New Year is often a good time to make some resolutions about your home and mortgage, but this is especially true for 2019 because it follows a steep rise in mortgage rates.
Through the first eleven months, 2018 was on track to have the biggest increase in 30-year mortgage rates of any year since 1994. Rising mortgage rates can be a game-changer for homeowners, and giving some thought to the following New Year's resolutions may help you decide how higher mortgage rates might affect you and your plans to either move or stay in your home.
1. Revisit your homeowners insurance
Check the limits of your coverage to make sure you'll have enough insurance to repair or replace your home. This is especially important if you've made home improvements over the past year that would add to the replacement cost of your home.
While you're at it, also review the value of your personal property and document any significant additions to that property. This includes jewelry, collectibles and other valuables. Check with your insurance agent about whether you might need special coverage for certain items, or whether there are extra steps you need to take to document their value.
Flooding has been in the news frequently over the past couple of years, and with climate change it might affect more areas than in the past. In fact, flood insurance might be especially cost-effective if you don't live in an area traditionally known for flooding. As Michael Kodsi, CEO of Choice Mortgage Bank in Boca Raton, FL told HSH.com, "it's not very costly if you don't live in a flood zone and it covers you for floods caused by storms."
2. Evaluate refinancing
Rising rates may have eliminated many of the most obvious refinancing opportunities, but it is still worth exploring your options on a mortgage calculator.
You might find you can cut costs by refinancing into a shorter-term mortgage, or perhaps use your home equity to qualify for a refinance mortgage that doesn't require private mortgage insurance.
3. Consider prepaying
If refinancing doesn't look like a viable option for you, you could still reduce your long-term mortgage interest expense by prepaying your mortgage. Paying down your mortgage faster means fewer years of paying interest.
Robert Lund, a Vice President of Real Estate Lending for Bethpage Federal Credit Union described to HSH.com some examples of how this could work: "You can shave years off your mortgage by setting up biweekly payments, making one extra payment each year or rounding up your monthly payment every month. The difference prepayment makes depends on your loan balance, your loan term and interest rate and how much extra you pay."
4. Rethink adjustable-rate mortgage
There are particular circumstances where an adjustable-rate mortgage can make sense -- especially if you don't plan to be in your home for more than a few more years. However, if rising mortgage rates have put you in line for an increase in your monthly payments, this might be a good time to reevaluate whether an adjustable-rate mortgage is the best loan for you.
Focus on what risk you face of having your mortgage payments becoming difficult to afford if interest rates continue to rise. The longer you plan be in your current house with an adjustable rate mortgage, the greater this risk is.
5. Check your HELOC terms
Home equity lines of credit, or HELOCs, generally have variable interest rates. HELOCs can be especially convenient if you are making a series of repairs to your home over time and need to access financing at different points. However, with interest rates rising, the variable interest rate on a HELOC could represent a risk.
Check your HELOC repayment terms and potential interest rate adjustments. If you don't need to access additional financing, you might consider refinancing your HELOC balance into a fixed-rate home equity loan to stabilize your payments.
6. Decide whether this is the right time to make a move
Young couples planning to start a family may have been considering moving into a larger home. On the other end of the spectrum, older homeowners might be thinking about downsizing.
Whatever type of move you are considering, rising interest rates could represent a closing window for following through on your plans. Look at whether conditions are right for you to make the move you've been considering, because things could change drastically by the end of 2019.
7. Maintain and repair
Your home needs an annual physical to make sure systems are running right. This means checking conditions both inside and outside, and this is vital whether you are getting a home ready for sale or trying to keep it in top shape to live in for the long run.
On the outside, make sure your roof and siding are in good condition. Letting problems with either go can result in structural damage to your home. Take a look at the surrounding trees to see if overhanging limbs threaten your house, or if fallen leaves are clogging gutters and drains.
On the inside, think not just about the condition of your major appliances, but also their energy-efficiency. In the case of very old equipment, energy savings can go a long way toward making an upgrade cost-effective. Also on the inside, don't let nagging problems like drips or dodgy wiring go any longer. These can quickly turn into much bigger problems if you don't address them.
Here's hoping you have a great 2019. Following through on these resolutions could help keep your home and finances healthy, and that should make it easier to be happy.
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