I stayed in Herceg Novi as part of whistle stop tour of Montenegro. The manager of the guest house and his family were friendly, and welcoming. The suite/apartment I stayed in was comfortable, spacious, and had all the facilities needed for a brief stay. Furniture is more traditional than modern, but I was very comfortable, and it was clean.
Location wise it was a couple of minutes walk to the nearest restaurants, about 3-4 minutes walk to the bus station, and about 10 minutes walk to the centre of Old Town. The Spanish Castle was approximately a 15 minute climb/walk. The town, like the whole country, seemed safe, and I happily walked back to the Guest House after midnight.
Old Town had some nice restaurants, bars, and like everywhere I visited in Montenegro, people were friendly.
Overall I would say Herceg Novi is definitely worth a day of your time, and the Guest House is a good, economic option for accommodation.