If you’ve decided that home ownership fits your lifestyle, and you know how much you need to cover the upfront costs, the next thing you’ll need to know is whether your budget can actually support the ongoing costs of owning a home. I can hear you right now going “when does it all ennnd“.
I promise though, the pain of calculating all of these costs early on is so much easier to bear than the later realization that you’re house-poor because you didn’t factor in all of the ongoing costs. Let’s do this together, shall we?
If you’ve missed the earlier instalments of this “series”, click here:
Step 1: Is Home Ownership Right for you?
Step 2: Can You Afford to Buy a Home? Part One: The Upfront Costs
I said this about mortgage loans in my post on the upfront costs, but I’ll say it again because I think it’s so important:
Just because you qualify for it, doesn’t mean you can afford it.
So you have a lump sum saved to cover your down payment and upfront costs – go you, you saving rockstar! The next milestone is being able to afford the ongoing costs within your existing expenses. Below are some of the common costs associated with buying a home that will carry forward on an annual or monthly basis.
The obvious one and the one you probably have figured out. Take the purchase price of the property, subtract your down payment, add your mortgage insurance (if applicable) and there you have your mortgage loan amount. Most banks have monthly mortgage payment calculators, but you can find my favourite, non-bank affiliated calculators at CMHC and Ratehub.
Calculating how much interest you’ll pay on your loan over its lifetime is generally pretty complicated for most people (also: me), but if you’re interested (get it? harharhar) there are some handy calculators online that figure it out for you. Find one here and here.
If you read the first part of this series, you know that mortgage insurance can be paid up front or on your mortgage. As a recap, if your mortgage is high-ratio (down payment between 5% and 19.99%), you require mortgage loan insurance to protect your lender if you default. You can find out what your CMHC fees will be by using this CMHC insurance premium calculator. If you’ve added the cost to your mortgage, to calculate your monthly payment, simply add the insurance premium to your total mortgage loan amount when doing your mortgage payment calculations in the calculators above.
Depending on your location, you may be able to add your property taxes to your mortgage. Otherwise, you will likely pay directly to your city. In our case, we pay directly to the city and receive a tax bill quarterly. We don’t receive any incentives for paying it early, but to make life easier on myself, I automated a monthly payment to the city which means when we get our bill, we actually already have a zero balance.
Many communities list their property tax rates online or have property tax estimators like this one in Ottawa. Remember though that it’s the assessment value, not the purchase price, that gives you the tax amount.
Utilities (Gas, Hydro, Water/Sewer)
Your utility costs vary greatly depending on the time of year, usage, region, provider, age and size of home, so they can be difficult to estimate. However, as usual, Google does offer what help it can in finding utility calculators, like this one in Ontario. Some are billed monthly, and some may be billed quarterly or annually. For example, our gas and hydro bills are monthly, but our water and sewer bill is quarterly.
If you’ve got an approved mortgage, then you likely already have home insurance, since it’s a requirement to take ownership. 2012 research suggests that Canadians, on average, pay $840 annually for home insurance, which equates to $70 per month. If you already have renter’s insurance or auto insurance, contact your provider to see if they offer discounted rates to switch to or add home insurance. Most insurance companies will also give you free quotes so do shop around.
Hot Water Tank
This cost largely depends on if you bought or rented your hot water tank. Robb Engen, from Boomer and Echo found that most Ontario residents rent, while most Albertans buy, so what you do may depend on your region. The cost of renting is typically between $10 and $30 per month depending on your carrier and the size of the heater, whereas the cost to buy is between $800 and $1,200 plus installation fees upwards of $400. Which option is right for you depends on whether the home you’re buying already has a rental contract and how long you plan on being in the home.
If your new home is a condo or part of a Home Owners’ Association, you will likely be required to pay fees in return for service and maintenance. Some will also cover part of your utility fees. These will vary widely so be sure to ask about this when you are shopping for a new home. Typically, Canadian condo fees are between $0.50 per square foot to as high as $1.00 – the highest rates being in Toronto. HOA fees are generally a little less, but also vary widely depending on where you live and the size of the home. You can expect anywhere from $100 to $1000 per year.
The rule of thumb for budgeting for repairs is to annually put away between 1% and 4% of the purchase price of your home. Where you fall in that range depends on the age of your home – if it’s a brand new build, you won’t need to put aside as much because most repairs will be under warranty for the first couple of years, with structural things like the roof under warranty for even longer. If you purchase an older home though, you may need to save at the higher end of the range to prepare for costs such as replacing the roof or electrical systems. This repair budget is also a good idea if you live in an area that is at risk for nature’s mood swings like floods or high winds.
If you have a yard, you could be like me and just let nature take its course. While I do cut our grass, I have not yet succeeded in ever keeping a plant alive, so I’m embracing the minimalist lawn look. This is awesome for my budget. If you have more of a green thumb though, you’re going to need to budget for things like yard maintenance tools, plants, and all the things plants need to keep them alive. Even if you’re similar to my skill level, you’ll still likely need a lawn mower which comes with the need to refill gas and potentially maintenance costs. Also, depending on where you live (like me, in one of Canada’s snow belt regions), you may want a snowblower for the winter, which in addition to the upfront cost, also costs to power it.
Are you feeling overwhelmed by estimates and what-ifs? So many words, but what does it all mean?
Let’s assume you’re buying a home in Ontario (outside of Toronto, which has some of its own fees and rebates):
- Purchase price: $400,000
- Down payment of $50,000 or 12.5%
- Terms: 2.5% fixed over 5 years (about average today according to ratehub.ca)
- 25 year amortization.
- Monthly payments, no extra payments.
|Mortgage (incl. insurance)||$1605.51|
|Hot Water Tank||$15|
Once you have your total, plunk that into your existing budget to see if you can afford to add these additional expenses. If yes, then you’re golden! If not, you should be looking to reduce your costs by waiting until you can save up a larger down payment, or finding a home with a lower purchase price.
Have you had any unexpected costs to home ownership?