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How Smart Thermostats Can Cut Down on Housing Costs

It’s summertime! In southern Ontario where I live, that means lots of heat and humidity; so it’s time to turn on the air conditioner.

Stepping inside to a cool, air-conditioned home is a wonderful feeling on a 30º day, but electricity is expensive in this part of the world. Based on Toronto Hydro’s time of use rates, running a 4-ton 16-SEER central air conditioner for one hour costs approximately 83¢. Even in off-peak times, an hour of air conditioner use comes close to 50¢ – enough to add hundreds of dollars a month to a hydro bill.

Many homeowners simply set their thermostat to a comfortable temperature around 20º and leave it there all summer, but it’s an inefficient strategy. During the hottest hours of the day (which are often the hours when people aren’t home), the air conditioner is working hard to maintain a cool temperature.

Personally, I try to conserve where I can. I try to only run the air conditioner for a few hours at night to make it comfortable for sleeping, and I set the thermostat to a reasonable temperature (I admit it’s set a little colder than the balmy 25º the experts recommend). It’s more energy efficient to cool my home when it’s needed, and let it warm up a bit during the day.

It’s not always convenient to constantly adjust your thermostat by hand, however. A simpler method would be to use a smart home thermostat. These devices learn from your behavior, so they can automatically adjust the temperature to keep you comfortable when you need it and save energy when you’re not home. Many even calculate how long it takes your system to heat or cool your home and adjust to make sure it’s always just the right temperature for you at key times, like when you get home and when you go to bed.

The energy savings from a smart home thermostat can add up. According to Natural Resources Canada, you can save at least 8% of the energy used for home heating and cooling by switching from a manual thermostat to a smart thermostat.

Can smart home thermostat savings help me buy a home?

Mortgage lenders don’t care if you sweat in the summer, but they want to make sure you don’t freeze in the winter. That’s why the cost of heating your home is a factor in how much money you can borrow to buy a home.

So, can switching to a smart home thermostat help you afford a bigger house? Let’s do the math.

There are a few criteria considered in determining how big of a mortgage you’ll be allowed to get. If you have good credit, you’ll usually be allowed to use up to 39% of your pre-tax income toward your mortgage payment, property tax, heating costs, and half of any condo fees.

If you have a healthy household income of $100,000, you can spend up to $3,250 per month on housing costs. Assuming property taxes of $300 per month and electric baseboard heat costing an average of $500 per month, Ratehub’s mortgage affordability calculator shows there’s enough money left over to support a $408,000 mortgage with a 5-year fixed rate of 3.19% amortized over 25 years.

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Applying the 8% savings from a smart home thermostat, your affordability goes up to $414,000. That’s a difference of $6,000, which is a lot of money but not realistically enough to make a material difference in affording a home.

A small change can still make a big difference in housing costs

Installing a smart home thermostat may not be able to help you afford a more expensive home, but what about the one you have?

By using the savings from a smart home thermostat, you can make additional payments toward your mortgage and potentially save hundreds of dollars in interest. Here’s how.

Let’s assume you have a $500,000 mortgage amortized over 25 years at today’s best 5-year fixed mortgage rate of 3.19%. Over the lifetime of your mortgage, you would pay $242,572 in interest.

Most mortgage lenders allow you to increase your monthly payment by around 15-20%. Using your savings to increase your payment will help you pay down your principal faster and pay less interest over the long run.

If you assume the same $500 per month for heating and 8% energy savings, that gives you an extra $40 per month to put toward your mortgage. It’s not a massive amount, but it’s enough to save you over $6,100 in interest payments over the life of your mortgage and pay off your mortgage seven months sooner. Because you keep the monthly payments in the form of home equity, this can turn $40 per month into $18,000.

Add in the summer savings on your air conditioning bill, and you can increase your savings even further.

The benefits will only grow as time goes on

Making this one simple upgrade to your home isn’t an exercise in instant gratification, but it can make a big difference over time.

A smart home thermostat can save you as much as 8% on heating and cooling costs. If you use the savings to make extra mortgage payments, it could save you thousands of dollars in the long run.

And that math is only based on today’s energy prices. The cost of heating fuel and electricity are sure to rise in the coming years. The higher the prices go, the more substantial the savings will be.

Choosing a smart home thermostat can help you save thousands in heating and cooling costs over the years you own your home. By using the money you save to make extra payments toward your mortgage, you can save substantially on your housing costs.

To find out more about smart thermostats, check out Mysa and Ecobee.

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Photo by Bench Accounting on Unsplash