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The American dream of home ownership comes at an eye-popping price. In 2020, the average mortgage account balance in the U.S. stood at $208,185, and double that (or more) in the nation's most expensive locales. And that's just how much people owe on their home—the cost of homeownership goes beyond your monthly mortgage payment. According to a survey by real estate listing site Clever, the typical homeowner spends $13,153 a year on maintenance and repairs, home improvements, property taxes and homeowners insurance.
The American dream need not be a financial nightmare, though. You can save money as a homeowner by lowering your utility bills, exploring tax breaks, looking into refinancing your mortgage, reducing your homeowners insurance premiums or boosting your credit score. Read on to unlock ways to cut the costs of homeownership.
Lower Your Utility Bills
In 2019, the typical electric bill in the U.S. totaled $115 a month, according to the U.S. Energy Information Administration. That adds up to $1,380 a year just to keep the lights on. And that doesn't include paying for other utilities, such as natural gas and water.
So, what can you do to trim your household's utility expenses? Here are four suggestions:
- Install LED lights and dimmer switches. Upgrading your lights and switches involves an upfront cost, but it can save you money on electricity costs over time. LED lights use less electricity and don't have to be replaced as often as traditional lights. Dimmer switches can help you save by cutting back on the amount of light you use.
- Invest in energy-efficient appliances. If you're outfitting a new house or replacing worn-out appliances, check out appliances that carry the Department of Energy's Energy Star certification. This includes refrigerators, dishwashers and washing machines and even home heaters and air conditioners. Energy Star-certified washing machines use 25% less power and 33% less water than regular washers do.
- Consider getting a programmable thermostat. A programmable thermostat can automatically adjust heating or cooling in your house to increase efficiency and chip away at energy costs. You can save as much as 10% a year on heating and cooling by turning your thermostat back by seven to 10 degrees from its normal setting for eight hours a day, according to the Energy Department.
- Monitor water usage. You may try decreasing the setting on your water heater or washing your clothes in cold water to lower energy costs. Meanwhile, fix any leaky faucets so you're not sending money down the drain.
If you plan to stay in your home for a while, you might weigh the benefits of installing solar panels or improving your home's insulation to reduce your utility bills over time. Depending on where you live, you might even qualify for cash rebates, tax credits and other programs that incentivize homeowners to upgrade their house's energy efficiency.
Look Into Tax Benefits
Owning a home can have tax benefits that some homeowners may ignore or may not even be aware of.
One of them is the mortgage interest tax deduction. Typically, you can deduct the annual interest you pay on a mortgage if you itemize deductions on your federal tax return. Eligibility for the deduction depends on the dollar amount of your mortgage and when you bought your home.
You also may be able to claim a deduction on your federal tax return for state and local property taxes paid on your home.
If you installed a residential solar energy system, you can qualify for an additional tax credit. The credit allows you to deduct 26% of the cost of installing solar for residential projects that begin installation through 2022, then steps down to 22% for projects that begin in 2023. As it stands now, the residential credit vanishes in 2024.
Refinancing your mortgage involves getting a new loan to pay off your original mortgage loan. Doing so may let you reduce the interest rate on your mortgage or drop your monthly payment by stretching out the repayment period. You may also refinance to get rid of the requirement for mortgage insurance, or to convert your adjustable-rate mortgage to a fixed-rate loan.
So, how do you decide whether refinancing is right for you?
If you have good or excellent credit, you could take advantage of historically low interest rates and refinance your mortgage, which can lead to lower monthly payments and thousands of dollars in savings over time.
Keep in mind, however, that refinancing may come with thousands of dollars in fees, which may partially offset savings you could realize from a lower interest rate or lower monthly payments (though you'll likely save significantly more over the long haul if you stay in your home). In addition, if you pick a lower-interest refinancing deal with a repayment period that's shorter than the one you have now, you may have higher monthly payments.
Ultimately, you may decide to go ahead with refinancing if you run the numbers and see that you'll save enough on your monthly payments to break even on your refinancing costs in just a few years. If you go ahead with refinancing, be sure to shop around for the lender offering the best rates, terms, fees and customer service.
Lower Your Homeowners Insurance Costs
Some homeowners may be able to shave money from their home expenses by lowering their homeowners insurance bill. Data released in 2020 by the National Association of Insurance Commissioners shows the average annual premium for homeowners insurance stood at $1,249 in 2018.
How can you decrease your homeowners insurance premium? Here are four potential ways:
- Shop around. Compare insurance quotes from at least three companies, and you may be able to find another insurer that can cover you for less.
- Raise the deductible. If you bump up the deductible from, say, $500 to $1,000, you may be able to cut your premium. The deductible is the amount of money you pay out of your own pocket when your insurer approves a claim.
- Bundle policies from the same insurer. If you purchase homeowners insurance from the same company that insures your car, you may be able to score a lower premium. Insurers call this "bundling."
- Ask about discounts. You might qualify for premium discounts if, for instance, you've installed a burglar alarm or you're older than 55. Or you might secure a loyalty discount by staying with an insurer for a certain number of years. There's no risk in calling your insurer to check.
How Your Credit Score Can Help You Save Money
A good credit score can open a number of financial doors. Whether you're getting ready to sign a mortgage agreement or you're considering a refinance, an improved credit score can help you secure a lower interest rate and save you a heap of money over the life of your loan.
You might also want to finance home improvement costs with a credit card that offers an introductory 0% annual percentage rate (APR) for new purchases, such as a new refrigerator or supplies for a home improvement project. Just be sure to wipe out the full balance before the intro period ends and the card's standard interest rate kicks in. The right credit card can also deliver rewards well beyond its no-interest intro period for shopping at certain stores or making certain purchases.
If you're thinking of applying for a rewards credit card or a card with a 0% introductory APR, check out Experian CreditMatch™ to see customized credit card offers that may be right for you.
A good credit score also could enable you to gain favorable terms, such as a low interest rate, for a home equity loan or home equity line of credit. This may wind up being a cheaper way to borrow money to pay for a home improvement project or another household need than putting purchases on a high-interest credit card.
The Bottom Line
Owning a home may be one of the greatest achievements of your life, but also one of the most expensive. However, you've got many tools in your financial toolbox to trim the expenses associated with owning a home. Help keep your financial house in order by checking your free credit report from Experian and signing up for free Experian credit monitoring.