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Buying, Finance, Renting

Staying Prepared in a Recession | Tips for Financially Protecting Your Home

While nobody knows if or when the next recession will be, it’s important to make cautious and wise financial decision now that your future-self will thank you for. Here’s how to hedge your bets and protect yourself during the next recession.

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It was one for the history books, second only to the Great Depression, the Great Recession saw countless homes foreclosed, numerous bankruptcies, and overall catastrophic distress in the housing & financial markets. In fact, during the 10 years that spanned the Great Recession, 7.8 million foreclosures happened. For those that lived through the financial turmoil, there is fear and hesitancy of history repeating itself. The real estate market has certainly recovered; however, there is chatter that a looming correction could be on the horizon. Whether it’s just an adjustment in the housing market or a full-blown recession, there are steps you can take now to hedge your bets and place you in the best place financially.

African male holding piece of paper while paying gas and electricity bills online on notebook pc. Young family calculating their expenses, planning domestic budget, sitting in kitchen interior

Take Advantage Of Current Low Interest Rates

For much of 2019, interest rates have been low. One of the contributing factors to foreclosures during the recession were extreme or variable interest rates. There are two ways to take advantage of low interest rates to protect yourself in case of another recession:

  1. Buy A Home. Arguably one of the best ways to hedge your bets is to have affordable housing that can sustain an economic downtown. Locking in a mortgage with a low interest rate helps a buyer experience more affordable monthly payments & more money applied to the principal balance.
  2. Refinance Your Mortgage. If your original home mortgage was secured pre-recession, you probably know the impact of variable rates, interest-only loans, & balloon payments. Even if your mortgage was secured after the recession, mortgage rates have since declined and your home equity could have increased. By refinancing your current mortgage, you can lower your overall monthly payment. Decreasing your overall monthly housing budget is a critical step in recession-proofing your finances.

Create Multiple Streams Of Income

While the housing market took a downtown during the recession, the rental market remained steady and one of the ways to withstand an economic downturn is to have multiple streams of income. While demand may be less from buyers due to a recession, the demand by renters typically increases. By purchasing rental properties with lower interest rates, the additional stream of income can be a vital asset during a recession. While strategies may vary in how to acquire a cash-flowing rental property, the math is still the same: purchase low with a 20% down payment and a low interest rate will help an investor to not only maintain but cash flow the rental.

Pay Down Your Mortgage

Whether you choose to refinance your current mortgage or not, paying down your existing mortgage will not only build equity but provide freedom in the next recession. By utilizing programs such as Bi-Saver, homeowners can experience flexibility in mortgage payment schedules as well as increased equity. Programs like Bi-Saver act as a third party that collects the mortgage bi-weekly throughout the life of the loan– by the end of each year at least one additional mortgage payment is applied to the loan. This process can erase years off the life of the loan. By combining a low interest rate and additional mortgage payments each year, homeowners have the ability to experience some breathing room in their finances.

While nobody knows if, or when, the next recession will be, it’s important to make cautious and wise financial decision now that your future-self will thank you for. By taking advantage of lower interest rates, creating multiple streams of passive income, and paying down your mortgage will help you to hedge your bets!

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Jennifer is an accidental house flipper turned Realtor and real estate investor. She is the voice behind the blog, Bachelorette Pad Flip. Over five years, Jennifer paid off $70,000 in student loan debt through real estate investing. She's passionate about the power of real estate. She's also passionate about southern cooking, good architecture, and thrift store treasure hunting. She calls Northwest Arkansas home with her cat Smokey, but she has a deep love affair with South Florida.