How to save money through home warranties

It’s a line often touted by lenders. “Mortgages are cheaper than rent,” they say. On the surface, it’s usually true. In some urban cores, many properties are grossly overpriced. However, like most sales pitches, there’s something they aren’t telling you.

Home ownership carries with it substantial financial responsibilities. In addition to your monthly mortgage payments, you’ll owe property taxes to your municipality. Do you live in a condominium? If so, you’ll also owe building fees, which pay for the upkeep of shared systems, common areas, and landscaping.

And then there is household maintenance. Every year, Americans spend an average of US$2,000 per year just to keep their homes intact. And that’s just an average: the average American household is now 37 years old. As a result, many spend more than US$2K a year on their house.

These expenses would only be mildly annoying if the economy were genuinely thriving. However, despite the stock market reaching record highs, more Americans than ever are struggling financially. 40% of us can’t cover a sudden $400 expense, and a whopping 78% live paycheck-to-paycheck.

More than ever, we’re looking for ways to rein in costs. Misguidedly, some opt to forego maintenance. This approach always backfires, though. A famous maxim says it best: pay me now or pay me (a lot more) later.

Instead, we recommend you investigate home warranties. Depending on your circumstances, they could save hundreds or even THOUSANDS per year. In this blog post, we’ll explain what home warranties are and if it is the right solution for you and your family.

What are home warranties, and how do they work?

Home warranties have been around since the 1970s. Until recently, though, most Americans had no idea what they were. Rodney Martin, CEO of America’s Preferred Home Warranty, says only 3-4% of households had them as of 2015.

There’s a simple reason why home warranties haven’t caught on. In earlier generations, the age of the average home was younger. As a result, maintenance costs were lower. Fast forward to 2018: that year, the average house in America was pushing 40 years old.

Maintenance costs are steadily rising. People are looking for answers. Accordingly, interest in home warranties is increasing.

So, what exactly are home warranties? In a nutshell, they are contracts that cover the repair/replacement cost of appliances and systems. All machines eventually break. Because it’s an expected outcome, though, homeowner’s insurance doesn’t cover them. Home warranties fill in this gaping hole, providing their holders with badly-needed peace of mind.

Let’s say your dishwasher grinds to a halt. Stepping over a river of leaking water, you grab your phone and call your home warranty provider. After confirming they cover your issue, they dispatch a repair technician. Apart from a nominal service fee, you pay nothing more out-of-pocket.

How can a home warranty save me money?

You might still be skeptical. After all, getting a home warranty means investing significant capital in something you’re unfamiliar with. Think of it like this: right now, the average American spends US$2,000 per year maintaining their home. Some years it’s less, but in others, it’s more.

Compare that with someone who has a home warranty through a supplier like  TotalProtect. Let’s say they pay a premium of US$50 per month. TotalProtect has a $125 deductible: our hypothetical homeowner makes three service calls per year, costing them $375 in fees. Annually, they’d pay their home warranty provider US$975. In years where repair/replacement costs exceed coverage caps, that number might exceed US$1,500.

Even in the worst-case scenario, they’re still paying LESS than the average household. These savings show why home warranties are a good investment for many families.

Scenarios where a home warranty makes sense

Who is best served by home warranties? As we’ve already illustrated, those living in older homes are the best candidates for these policies. After a house passes its tenth birthday, maintenance costs begin to pick up.

Not so coincidentally, most home builder warranties (different from home warranties) expire after ten years. After about 20 years, most homeowners are spending more on repairs and replacements than a home warranty would cost them. If you’re in that boat, perhaps it’s time to stop throwing good money into the abyss.

Do you own investment real estate? If so, covering your properties with a home warranty might be a smart play. Leave aside the fact rental homes are older than the average owner-occupied home: this move will save you a lot of grief. Do you really want to spend your free time fixing toilets? This move saves time, money, and makes it easier to retain quality tenants.

Are you in a situation where a home warranty would cost the same as saving a maintenance fund? Even here, they are still beneficial. Repair and replacement expenses can be unpredictable. One year, you may spend $500. The next, you might be out $3,000. These costs do average out in the end, but expensive repairs can catch you in a financially vulnerable position.

With home warranties, maintenance costs are predictable, making it easy to budget for this expense. Every month, you pay a premium of $40-$80. When you need service, you pay a $60-$125 deductible. And that’s it. No more $3,000+ surprises!

Sometimes, home warranties aren’t a great deal

Despite their benefits, home warranties aren’t a “one-size-fits-all” deal. Let’s say you just moved into a brand new house in the suburbs. All your appliances are brand spanking new, as are your systems.

In this scenario, you shouldn’t bother with a home warranty. Everything you own is in peak condition:  it’s doubtful anything will break. Are you worried about structural and system defects? You might already have a home builder’s warranty:  most are good for up to ten years.

That leaves appliances. Most have manufacturer’s warranties, which protect you from factory defects for up to two years. Even if your fridge dies after the warranty lapses, most models can be replaced for less than $1,000.

Don’t let your house turn into a money sink

You don’t have to empty your pockets in the pursuit of a fully functional home. Next to preventative maintenance, a home warranty contract is your best defence against budget-busting expenses.

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