Everyday Living Tips | Real Estate and Mortgage

8 House Expenses You Should Expect As A Homeowner

House Bills

The Cost Of Owning A House Is More Than A Mortgage Payment

If you are considering purchasing a home for the first time there are house expenses you must be aware of.

Costly home repairs can take a comfortable monthly budget and turn it upside down if you’re not prepared.

This type of financial uproar can cause increased debt and potentially a downward spiral if you can’t pay it off.

Before you sign the mortgage documents at the bank or lending agency the most important thing you can do is create a budget.

I’ve blogged about putting together a mock household budget that you should live with for 3-6 months so you get an idea of what types of expenses you should expect as a homeowner.

These are everything from fixed expenses which are bills you will pay that are always going to be there and variable expenses.

Variable expenses are those that you have control over such as groceries.

If you have a budget of $200 for groceries each month and you really need to find an extra $50 then look to your variable expenses.

These are the expenses you can work on to bring household budget expenses down.

I received an email from a young man who is interested in purchasing his first home.

Let’s have a read and see how we can help him get a better idea of what house expenses to expect.

Owning A House Expenses

Dear Mr.CBB,

I’m in my early 20’s and looking to buy a home in the next year or two.

I’ve saved up a sizeable downpayment and have been to the banks inquiring about a mortgage recently.

It seems they think I can afford more than I can based on my downpayment, credit rating, and net income.

My question is what typical house expenses should I expect when owning a home?

I don’t want to get in over my head and then live pay to pay or face losing my house.

Thanks,

Derrick

Hey Derrick,

Thanks for your email. I’ll do my best to explain to you what we paid for house expenses when we first bought our home in Ontario, Canada.

Mr.CBB

Common Household Bills

How much does a house cost per month?

Well, likely more than you think especially if you haven’t done any research on house ownership.

Honestly, house expenses differ based on where you live in Canada however we’ll explore the most common.

House expenses are those that every homeowner should come to expect when owning a home.

After you’ve bought your home there are certain bills that come with your house that you MUST budget for.

What’s frightening is that many Canadians get fixated on that weekly, bi-weekly or monthly mortgage expense and forget about the rest of the household bills.

Have you ever had someone tell you that you could afford a mortgage based on what they will lend you?

Probably, we’ve all been through it but the sad reality is that is you can’t trust anyone but yourself.

In fact, the main reason people go into debt is because of the unexpected house expenses they did not factor in.

On the other hand, if house expenses were considered they may have been far lower than what they actually were.

Sometimes you may get potential buyers asking the current homeowner for utility bills or costs to run the house.

You will also know what the cost of property taxes is that you must pay to the city.

So, you can find out more information than you thought about a house you are wanting to purchase.

Keep in mind that personal usage and the number of people in the home will increase or decrease variable expenses but not fixed.

House Expenses List

No one says you have to have cable, internet, home phone or even a cell phone to manage your house expenses.

In fact, these are expenses that you have some control over because you can add and take away what you want to pay for.

For example, although you may think this is a monthly fixed expense, often you can cancel subscriptions or data plans if it’s too much for your budget.

It’s similar to grocery shopping which is considered variable expenses since costs can fluctuate based on your spending decisions.

With a fixed expense like property taxes, mortgage or rent payment, it’s a bit more complicated than that.

The only perk with a fixed expense is that you always know the cost of your monthly expense. 

Property Taxes

Your property taxes are a levy based on your home assessment and the neighbourhood you live in.

How are property taxes calculated?

Property taxes are calculated using the Current Value Assessment of a property, as determined by the Municipal Property Assessment Corporation (MPAC), and multiplying it by the combined municipal and education tax rates for the applicable class of property.

We pay our property taxes monthly which automatically is debited from our bank account.

Many mortgage companies will factor in your property taxes to your mortgage payment and pay for it on your behalf.

This ensures that you don’t miss a property tax payment and one less house expense to think about.

When we had a mortgage we paid our property taxes on our own without the help of our lender.

Home Maintenance

We like to keep a minimum of $5000 a year in savings towards house maintenance simply because that’s what everything costs about now.

This is above and beyond our emergency savings account.

All j0king aside it depends on how big or little your home is and what renovations you plan to do.

Our neighbor, for example, saves $5000 a year to do one renovation project for his home.

On the other hand, home maintenance expenses also cover other things like the lawnmower, hired help, roof repairs or any repairs for that matter.

Perhaps you need new windows or you have a leak that your insurance company won’t cover.

It’s not something you should consider it’s imperative that every homeowner has a home maintenance budget.

Utility Bills

Unlike other bills such as cell phones, cable and so forth your utility bills are a must when you purchase a home.

You’ll be paying for bills such as hydro, water, gas and any other rental units such as water heaters or ac units.

Our hydro and water bill comes monthly where our water heater rental comes every three months.

Your utility bills will fluctuate in price based on costs and how much you use.

You can ask the previous owner of the home you buy for the average costs of the bills or the utility company when you call to set up your bills.

Keep in mind that many utility companies ask for a deposit before they hook up your services especially if you’re a first time home buyer.

This is to ensure they have a back-up in case you don’t pay your bill on time but will be used at the end when you decide to close your account.

Some utility companies who trust your bill payments will be made on time offer the deposit back to you or put it towards a current bill.

Mortgage

For most Canadians holding a mortgage will likely be the most expensive debt they will ever own.

When we bought our house we did so on one income only just in case something might happen.

Thankfully, we took that route as something did happen as Mrs. CBB lost her job months into homeownership.

Related: What happens if I have a late mortgage payment?

For this reason, it’s critical to analyze how much your mortgage will cost you and the best time to pay for it.

We chose accelerated weekly so we paid more than what it would have cost weekly.

The reason for that was so we could pay the principal down faster which worked.

In 5 years we paid our entire mortgage off by saving money and being frugal although this is not the norm.

Paying off your mortgage fast is based on many factors such as net income, debt, and monthly expenses.

Below are the charts I created using a Canadian mortgage calculator as mortgage affordability is only a piece of house expenses.

Based on a $300,000 mortgage with an interest rate of 5.00% amortized over 25 years this is what your house would cost you once it’s paid in full.

 

Mortgage example

Beginning of Mortgage Payment Schedule

mortgage schedule

End of Mortgage Payment Schedule

end mortgage payment

Mortgage Summary

 Over the 25-year amortization period, you will:

  • have made 1300 weekly payments of $402.33.
  • have paid $300,000.00 in principal, $223,025.19 in interest, for a total of $523,025.19.

 Over the 5-year term, you will:

  • have made 260 weekly payments of $402.33.
  • have paid $34,444.03 in principal, $70,161.02 in interest, for a total of $104,605.05.

 At the end of your 5-year term, you will:

  • have a balance of $265,555.97.

 Non-Monthly Savings

  • By the end of the amortization period, with your selection of a non-monthly payment plan, you save $419.30 more in interest than if you had selected a monthly payment plan.
  • By the end of the term, with your selection of a non-monthly payment plan, you save $50.40 more in interest than if you had selected a monthly payment plan.

          Period                  Principle             Interest           Total      Balance

Year 25 Totals $20,402.31 $518.69 $20,921.01 $0.00
After Term Totals $265,555.97 $152,864.18 $418,420.15 $0.00
Mortgage Totals $300,000.00 $223,025.19 $523,025.19 $0.00

Mortgage Insurance vs.Life Insurance

In my opinion, ditch the mortgage insurance if you can get term life insurance which will cover the full amount of the insurance policy.

This way your beneficiary can pay the mortgage in full if you should pass away and potentially have money left over.

For example, my old term life insurance policy was for $400,000 which would have gone tax-free to Mrs. CBB.

Since our mortgage is paid in full she could use that for funeral costs and anything else needed for her and our son.

If we had a mortgage of $265,000 (our starting mortgage in 2009) and I passed away she would have been able to pay that in full and cover funeral expenses.

A mortgage insurance policy only covers the remainder of the mortgage and goes straight to the lender.

The problem is not everyone qualifies for life insurance but I’d say don’t skip this step.

Always discuss details of any insurance policy with your advisor.

If you are still unsure there is no reason why you can’t shop around until you find an advisor that earns your trust.

Condo Fees (If applicable)

Any time you purchase a condo you can expect to pay condo fees also known as strata fees and are non-negotiable.

These fees typically are put into a fund and used to maintain common areas the property which the condos are built on.

However, even a complex of detached homes may be considered a condo.

When Mrs. CBB built her first house which was detached with a double garage and her property she had to pay condo fees.

These fees covered maintenance of the back laneway and gardens surrounding the housing community during the seasons.

This included snow removal, lawn care for boulevard as well as flowers and other shrubs to keep it looking pristine.

She believes she paid just under $100 a month for condo fees back in 2004-2005.

Related: Should my first rental property be a condo or a house?

Home Insurance

You can’t get a mortgage without house insurance which covers various facets of your home in the event of an accident or unforeseen event such as a flood.

Be sure to read your insurance policy (even the fine print) so you know what you are paying for ane what is covered.

Not all home insurance policies are created equally and you can pay for extra riders to be added if you want them.

Riders are enhanced coverage you can add to your policy such as overland flooding when water from the land enters your house.

The water might enter via doors, windows or through your basement during rain, winter meltdown or if you live near a lake or river.

Also, if you have any type of land or beach rights you may need insurance coverage in the event there is injury even if neighbors are included in using the land.

Always consult your insurance company to make sure you are paying for everything needed.

These extra house expenses will increase your overall monthly budget.

Also, if you own a condo your home insurance may differ from that of a detached home.

Again, consult with your insurance agent and ensure you understand everything.

If you don’t then ask questions until you do.

Our current standard house insurance costs us just over $1000 a year which we pay monthly.

The house was assessed by MPAC at just over $350,000, unfinished basement, small property, 1500 sq feet living in the Greater Toronto Area.

Emergency Savings

Major home repair costs can easily take down your emergency savings or increase the amount of debt you have.

Using a credit card to pay for home repairs is not the best idea especially if it’s a high rate of interest.

We save a minimum a year worth of budgeted house expenses including all budget categories in the event something should happen.

Keep in mind that if you know that your furnace may only last another year or so start saving in your projected expenses.

This way when it goes you have some or even all of the cash saved up to purchase a new one without having to pay monthly charges.

What happens if your roof starts to leak?

If it turns out you need to replace your entire roof these expenses will run you into the thousands of dollars even if you do the work yourself.

Your best bet is to start saving ahead of buying a house or to keep some savings back to start your emergency savings fund.

This might mean you hang on tight before you jump into homeownership but it’s better to be prepared for unexpected events.

Debt Repayment (If any)

Lastly, always consider debt repayment when you are applying for a mortgage.

House expenses which include all of the above coupled with other personal expenses and debts can be overwhelming for your budget.

If you walk into a mortgage blind or try to take one on living a fine line between pay to pay you’re pushing it.

It’s better to wait until you lower your debt load and have enough money saved up for a downpayment and savings.

You never know what could happen especially job loss or death which can throw a wrench into any budget.

In Summary

I believe Derrick is on the right path considering house expenses before he gets a mortgage.

When I was a bit younger than his age I researched and asked as many questions as I could.

As a young owner, the last thing you want is to walk into a mortgage uninformed.

Related: Was I Too Young When I Bought My First Property?

You can’t always trust the lender or the real estate agent so put some faith in yourself and your finances.

Remember, at the end of the day they are working to make money and you are working to save it.

House expenses are a big factor in homeownership success and I wish you all the luck on your journey.

Discussion:

What other house expenses would you consider as critical before accepting a mortgage?

Do you have any experiences to share for Derrick and other readers? Share them below in the comment section.

Mr.CBB

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6 Comments

  1. Great article.Would you mind sharing mortgage penalty calculator for fixed and variable.Would be great if you can explain how it works in plain English.
    Thanks

  2. I would like to add that I also have some additional categories that I budget for because we own as opposed to rent.

    My house upgrade category I call RENO-REPAIR-REPLACE, which is exactly as it suggests, we keep at a minimum of a $5,000 balance after having spent $10,000 on move-in.

    We also have a budget category for APPLIANCES (microwave, fridges, freezer, washer, dryer, furnace, hot water heater, heat pump/air conditioning) that I tend to keep at approx. $40,000 because it would be just our luck that everything would die at roughly the same time but definitely count on replacing each and every one of them every 10 years. So you need $4,000 savings every year to keep this fully funded.

    Then of course there is the biggie…a category for ROOF & GUTTER REPAIR OR REPLACEMENT which I keep at $25,000-$30,000. I plan on a full replacement of the roof very 20 years so $2,000 a year to keep this reserve fully funded.

    When you add it up…that’s about $75,000 to have ready and available at any given point in time. I would set up those fully funded accounts BEFORE I signed on the dotted line for a mortgage so that I could furiously save to replenish a budget category whenever we draw down one of the reserves…let’s not be looking at a second mortgage due to a failure to plan.

    I draw your attention to the HOME INSURANCE category…this is not a stagnant cost. Even with never having submitted a claim in nearly 40 years of home ownership, ours insurance has increased 10-20% in cost EVERY year. It’s also not a single insurance either. We have house insurance, glass insurance (because we live in an earthquake zone), earthquake insurance, water insurance to cover flooding not covered in a basic policy and a separate rider for any valuables we have that exceed the coverage of our basic home insurance for example high end bicycles, jewellery & electronics easily exceed most coverages in your basic policy. You also want to make sure your insurance is for the full replacement cost of the items you are covering…not merely the depreciated value unless you are planning to sit on a pot of cash to fund the shortfall in the event of a claim.

    Although it’s not strictly a house expense, I would also set up a category for LEGAL EXPENSES & TAXES. You are going to have legal expenses on both the purchase and sale of a home and there’s also GST to consider on the purchase transaction. You may think this is a one time event but if you sell, where are you going next? You’ll need to set up a reserve to cover the costs associated with the purchase of your new home…be you upgrading or downsizing so that you are not relying on getting maximum dollars on your sale to cover the costs associated with the new purchase. Also, if you are unlucky enough to have a nasty neighbor…you may have a dispute that needs to be settled in court. Plan for the worst but hope for the best. Good neighbors tend to come and go but the nasty ones tend to be firmly entrenched and will likely remain there as long as you do…if not longer.

    1. Hi Mary,
      Lots of excellent points you bring up which is why I want the readers to chime in as things differ all around Canada.
      I agree with having savings in place before buying a house that is above and beyond legal and real estate fees. Nine times out of ten once you move in things start falling apart or you need a new roof or gutters. We needed a new roof shortly after moving in that cost us just under 7k. I know lots of people try to roll renovation costs into their mortgages but it’s not something I would ever do as that just jacks up the costs by paying interest.
      Reading all of the details on insurance documents is imperative as is making sure you get full value as you mention for full replacement cost.
      So many people rely on house sales to fund the next house or retirement which is scary because it may not work in the end. In the case of our family had my MIL relied on the house sale she’d be in big doo-doo. Thankfully there was a large enough pension to keep her going until that sale is finalized.
      Nasty neighbours are the worst although we are lucky enough to have great neighbours. I know what you mean though, going to court is costly especially when there is a property dispute. Lots to consider. I never thought about the legal category as we likely would have lumped that into emergency savings but definitely something Mrs. CBB and I will chat about. Thanks for sharing your experiences Mary.
      Mr.CBB

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