December 18, 2019

Breaking down home warranties

One word homeowners don’t always think about is “entropy.”

Flash back to some of your high school science classes, and you might remember that entropy is - the unavoidable tendency of a system to decline into disorder. In simpler terms: Stuff breaks down.

Everyone with a mortgage is required to purchase homeowners’ insurance in case of structural damage or loss of personal property from emergencies like theft or fire.

But what happens if after a week, a month or even a year, that sweet fridge that came with your new house suddenly quits? Or your dishwasher? Or the furnace?

Breakdowns from old age or normal wear and tear are a natural part of home ownership. And under most circumstances, won’t be covered by your insurance.

To alleviate some of the financial burden when a major appliance or home system fails, some homeowners may opt to purchase a voluntary “home warranty.”

Home warranty “service contracts” cost $350 to $500 in premiums a year. The basic package usually covers repairs of your plumbing, most kitchen appliances, water heater, heating and electrical components, sump pump and fans.

Optional coverage is available for things like the washer and dryer, AC, garage door opener and septic system. Trouble is, home warranties don’t always deliver what’s expected.

Before buying a home warranty, make sure to read the contract thoroughly. There may be exceptions for items improperly installed, improperly maintained, or just too old. Beyond the premiums, there is generally a service fee added for each individual repair person’s visit.

The value of a home warranty depends a lot upon the age and condition of your appliances. With newer items, the manufacturer’s warranty often provides better coverage, and there may be other protections if you bought the item with a credit card.

Home maintenance costs rise and fall, but averaged out over the life of a mortgage loan, are fairly predictable. Consumer Reports has long recommended regular deposits into a savings account dedicated to repair and replacement. That way, the money is there whether something breaks or not.

All that being said, a nominal monthly fee in exchange for peace of mind may be worth your while, especially if you encounter more than your fair share of “entropy.”