Five New Year’s Mortgage Resolutions

Only 3 to 6 percent of people keep their New Year’s resolutions. Defy the odds, and resolve to get your financial life under control, starting with the following mortgage resolutions.

1. Use extra money to pay down your principal. Do you know what happens if you send in an extra principal payment each month with your mortgage check? Each dollar will reduce your outstanding loan amount, and shorten your loan term. If, for example, you have a 30-year loan for $200,000 at 5.5%, your monthly mortgage payment will be $1,398. By sending in an additional $100 each month, you’ll own your home in a little less than 24 years, saving six years of mortgage payments, as well as a whopping $71,256.

2. Take out a HELOC for energy-efficient improvements. Did you miss the deadline for taking advantage of tax deductions for energy-efficient improvements in 2010? Don’t beat yourself up; rather, look into what you can do in 2011. There are still tax credits for geothermal heat pumps, solar and wind energy systems, and fuel cells. And, if you’re just trying to reduce your carbon footprint, make choices like conserving water, by adding an on-demand tankless water heater or low-flow kitchen faucet, or buying a hybrid car. Finance these with a home equity line of credit (HELOC) against the equity in your home. You withdraw only the amount you need, and pay interest only on the amount you draw.

3. Take out a HELOC for an emergency fund. Financial planners generally advise that you should have three to six months of living expenses in a liquid account to tap into for emergencies like losing your job, unanticipated medical problems, or disasters like earthquakes or tornadoes. However, the economic downturn has seen people living close to the edge, tapping into their emergency funds instead of building them. The time to apply for a HELOC is when you don’t need the money. This way, you’ll qualify easily and have the funds…just in case.

4. Investigate a refinance. If you’ve been delaying your application for a mortgage refinance, resolve to take action in 2011. The pundits are theorizing that 2011 will be the year when historically low interest rates begin their ascent into more familiar – i.e., higher – territory. If you organize your paperwork ahead of time, the process will move more quickly. With everyone trying to take advantage of these once-in-a-lifetime mortgage rates, and higher scrutiny of applicants by banks, the process takes longer than you’re accustomed to.

5. Complete a home improvement project. If you’ve been procrastinating about a home improvement project, don’t put it off any longer. Create a budget to stay in control of the costs. If you have limited funds to spend, give your home a facelift. Instead of a complete bathroom renovation, change the faucets, the toilet, and purchase new towels and mats. If you’ve been dreaming about a kitchen makeover, look into refinishing or refacing your cabinets instead of replacing them, which can save you thousands of dollars.

Here’s to getting your mortgage life under control in 2011!