It’s true: homes can be money pits. We’re not just talking about the mortgage – maintenance can put a hole in your budget as time goes by. According to Statista, the average household spends more than $2,000 per year on maintenance.
When faced with any considerable expense, we look for ways to reduce its burden. Some tout home warranties, as they replace unexpected repair bills with a predictable premium. However, this doesn’t necessarily mean you’ll save money over the long run.
Are home warranties more cost-effective than paying for repairs as needed? In this article, we’ll explore this question in further detail.
Home maintenance costs can kill your finances
Every so often, we all look forward to getting away on holiday. Whether it is to the tropics or an energetic city, it helps to recharge our mental and emotional batteries. And then, the furnace dies. Facing a minimum bill of $3,500, it forces you to cancel your dream holiday – sad day for you.
This can happen even if you don’t own an older house. Often, new suburban developments are slapped together quickly and cheaply. Affordable homes are in strong demand, and the profit motive compels developers to skimp on labor and building materials.
A couple of years later, the roof of your ‘brand new’ home springs a leak. Or the pipes freeze on a cold winter’s night. Or the electrical goes on the fritz. All these unforeseen issues can cost you dearly – quite inconvenient if you’re trying to enjoy life.
Let’s run through a few numbers. Got a leaky roof? Expect to pay as much as $1,000 for a repair, and up to $10,000 for a replacement. Air con just died? Central air repairs can cost more than $900, and a new system can cost up to $4,000. Need to get your electrical fixed? If your house needs to be re-wired, expect to pay at least $4,300.
How can a home warranty save me money?
Are you scared yet? Good – if you are a new homeowner, you should be taking home maintenance seriously. Rather than waiting for expensive repair jobs to happen, it’s best to be proactive. Some do this by signing up for a home warranty – but can they really help you save money?
Before we answer that question, though, let’s talk about what a home warranty actually does. According to , home warranties offer repair/replacement of house systems and appliances for a reasonable premium. Whenever something breaks, the home warranty company will send a repair person to fix the problem.
Aside from a service fee (like an insurance deductible), you pay nothing for the rendered services. This arrangement is a godsend for some, as it takes the unpredictability out of home maintenance costs. Rather than spend $500 one year, and $5,000 the next, the homeowner pays the same premium each year.
This makes budgeting simple, regardless of whether the long-term math is in their favor. With your expenses locked in, you’ll no longer have to worry about maintenance expenses wrecking your bank account.
Home warranties are especially useful if you’ve bought a resale home. Once a house has been around for 8-10 years, maintenance costs begin to exceed premiums. At this age, issues become more frequent and expensive, making home warranties a great value.
How much can I expect a home warranty to save me?
It depends: how old is your home? How long have you had your appliances? If your house is less than eight years old, a home warranty will be more expensive than the status quo. However, if you have an older home, you’ll likely save cash over the long run.
Take Select Home Warranty, for instance. This firm offers home service contracts for $430-$500 per year, with service fees averaging around $60 per call. Let’s say you live in a ten-year-old home – according to this home maintenance calculator, you’ll pay $861 per year for repairs.
Not bad – it looks like you’ll save $431 on maintenance. But with an average of five calls per year, you can expect to pay $300 in service fees. All of a sudden, you’re only $131 in the black. And then there are caps to consider – if you don’t have platinum coverage, Select only covers the first $400 in heating repairs. If your bill comes to $600, you’re on the hook for the remaining $200. Goodbye, cost savings.
However, let’s put you in a bungalow built in 1969. In a house like this, you can expect to spend approximately $2,700 on repairs annually. While premiums are higher on older homes, they’re still reasonable – about $700 annually. If you request service seven times per year, that pushes your annual bill to $1,120 – still well below your projected out-of-pocket maintenance costs.
In this case, getting a home warranty is a no-brainer. However, be sure to comb through any agreement for exclusions (e.g. preexisting conditions) to avoid disappointment.
Home warranties: not a silver bullet solution
Unless you live in a character home, home warranty companies won’t save you boatloads of money. Those in new builds will spend less out-of-pocket, and those in 10-year-old houses will break even.
However, those in older homes looking for cost certainty may find this to be a worthwhile product.