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If you are considering purchasing a home for the first time, there are house expenses you must be aware of.
Owning A House Is More Than A Mortgage Payment
If unprepared, costly home repairs can take a comfortable monthly budget and turn it upside down.
This type of financial uproar can cause increased debt and 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 to understand what expenses you should expect as a homeowner.
These are everything from fixed expenses which are bills you will pay that will always be there, and variable costs.
Variable expenses are those that you have control over, such as groceries.
If you have $200 for groceries monthly and need an extra $50, look at your variable expenses.
You can work on these expenses to bring household budget expenses down.
I received an email from a young man 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
I’m in my early 20s 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.
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 for your email. I’ll try to explain what we paid for house expenses when we first bought our home in Ontario, Canada.
Common Household Bills
How much does a house cost per month?
Well, likely more than you think, incredibly if you haven’t researched 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, you MUST budget for specific bills with your house.
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 you can’t trust anyone but yourself.
People go into debt mainly because of unexpected house expenses they did not factor in.
On the other hand, if house expenses were considered, they may have been far lower than they 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 you must pay to the city.
So, you can find more information than you thought about a house you want to purchase.
Remember 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 must have cable, internet, a home phone, or even a cell phone to manage your house expenses.
You have some control over these expenses 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, you can often cancel subscriptions or data plans if it’s too much for your budget.
It’s similar to grocery shopping, considered a variable expense 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 payment.
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), applying it by the combined municipal and education tax rates for the applicable property class.
We pay our property taxes monthly, automatically debited from our bank account.
Many mortgage companies will factor your property taxes into your mortgage payment and pay for it on your behalf.
This ensures you don’t miss a property tax payment and one less house expense.
When we had a mortgage, we paid our property taxes on our own without the help of our lender.
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 joking 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. Every homeowner must have a home maintenance budget.
Unlike other bills such as cell phones, cable, and so forth, your utility bills are a must when you purchase a home.
You’ll pay for bills like hydro, water, gas, and other rental units like water heaters or ac units.
Our hydro and water bill comes monthly, whereas our water heater rental comes every three months.
Your utility bills will fluctuate 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 accounts.
Remember 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 backup in case you don’t pay your bill on time, but it will be used 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.
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.
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 it would have cost weekly.
The reason was to 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.
Beginning of Mortgage Payment Schedule
End of Mortgage Payment Schedule
Over the 25-year amortization period, you will:
- have made 1300 weekly payments of $402.33.
- 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.
- 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.
- 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 Insurance vs.Life Insurance
This way, your beneficiary can pay the mortgage in total if you should pass away and potentially have money left over.
For example, my old term life insurance policy was $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 $265,000 (our starting mortgage in 2009) and I had passed away, she could have paid that in full and covered 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 I don’t skip this step.
Always discuss the 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 are typically put into a fund and used to maintain common areas of the property on which the condos are built on.
However, even a complex of detached homes may be considered a condo.
When Mrs. CBB built her first detached house 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 the boulevard, flowers, and other shrubs to keep it pristine.
She believes she paid just under $100 monthly for condo fees in 2004-2005.
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 and what is covered.
Not all home insurance policies are created equally, and you can pay 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 land or beach rights, you may need insurance coverage if there is an injury, even if neighbors are included in using the land.
Always consult your insurance company to ensure 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 a detached home’s.
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 yearly, 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.
High home repair costs can quickly reduce emergency savings or increase debt.
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 of a year’s worth of budgeted house expenses, including all budget categories, in the event something should happen.
Remember 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 to purchase a new one without paying 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 thousands of dollars even if you do the work yourself.
Your best bet is to start saving before 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, including the above and 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 for a downpayment and savings.
You never know what could happen, especially job loss or death, which can wrench any budget.
I believe Derrick is on the right path considering house expenses before he gets a mortgage.
When younger than his age, I researched and asked as many questions as possible.
As a young owner, the last thing you want is to walk into a mortgage uninformed.
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 significant factor in homeownership success, and I wish you all the luck on your journey.
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?
Please share them below in the comment section.