Previously, we explored the costs of a home purchase - looking at things beyond the down payment. Today, we explore costs other than your mortgage payment alone. Again, this is to help make a SMART informed purchase - fully armed - with no surprises.
Here are some sample ongoing housing costs for a one bedroom condo.
Likely by this point your mortgage broker has given you your approximate mortgage payments. If they haven't, but you want to know what they are, use any online mortgage calculator to get a better idea. You'll need to know the amount being mortgaged (you need to know if you CMHC will be added to your mortgage), the length of the term (often 5 years), the amortization period (often 25 - 30 years), the interest rate, and the payment frequency.
Keep in mind that bi-weekly mortgage payments can make a big difference to how quickly the principal is repaid. So rather than making your payments monthly, consider bi-weekly. Add the two bi-weekly payments together for your total monthly cost.
For our example from part one, I used a CIBC Mortgage Calculator and input the following:
Mortgaged Amount: $324,765
Term: 5 years
Type: Fixed, Closed
Amortization Period: 25 years
Interest Rate: 2.60%
Payment Frequency: bi-weekly
Based on this information, I know that per month, my mortgage will cost $1,354.00.
Using the information I researched in Part One, I know that my approximate annual property taxes are $2,300, and I'll divide this by 12 to get the monthly amount I need to save. This equals $191.67.
Some lenders will offer to deduct, or take-off a property tax amount in conjunction with your mortgage payment - to help you save for your annual property tax bill. While this is a nice offer and good for those who are nervous about the responsibility of saving, I'd rather do this myself. That way I have control over leaner months (saving less than $191.67), and months that I have excess, can beef up this category (again, using YNAB). I love that I'm earning any potential interest, and have use of the cash flow should I need it. Imagine the interest accruing in favour of the mortgage company for all the people they kindly offer to save for - how generous!
Watch your first payments closely. I told my lender that I absolutely DID NOT want them deducting my property taxes as part of my mortgage payments. My first payment reflected that they went ahead and did it anyway. I had to call again and reiterate my request.
Strata Fees AKA Homeowner Association Fees
If your new home is in a townhouse or condo development, you may have monthly fees. These fees usually take care of the share portions of the property. Things like maintaining the elevator, landscaping, and paying for a professional management company.
You likely already know whether or not you'll have to pay these fees. If not, ask your REALTOR. For the purpose of our example, the fees are $307.85 per month.
Depending on the size of the property, you might be able to make a good estimate of the monthly electricity bill. It can be a good idea to ask the Seller to verbalize this amount or give you a recent statement, to help you budget. Condo properties can be minimal, but for houses, the cost can be significant - it's not something you want to be surprised by.
Remember to include other energy costs. For example, the lights etc. might be electrical, but the heating could be oil or gas based, in which case you need to factor this in too.
This one is fairly straightforward. If you're going to have cable/netflix/shomi, etc, get an estimate of the cost from the provider. There are often incentives for new accounts when moving, but be careful and budget the amount you WILL BE paying in the future.
Determining a monthly amount to set aside for general repairs, replacement, and general maintenance is a great idea. For a small condo, I think $100 monthly is a good idea. Last time my hot water tank needed replacement, I had the money set aside ready to go. Determining an amount can be challenging, so you need to make your best estimate.
Imagine moving into a house, getting a handle on your expenses, and 10 years later, you need a new roof. This can be a HUGE bill. It's best to start putting aside money from day one. Even if you don't have the total saved, hopefully, by the time the repair is necessary, you'll have put a big dent in the bill.
You need to have insurance on your property to safeguard against any potential future issues like theft, earthquake, fire, and floods. If you don't know the amount of this expense yet, set a meeting with an insurance provider (this is worth shopping around too), and get a home insurance quote. While you may have the option of paying this monthly - it is much much better if you can pay the first one up front, and then divide the total amount by 12, and save that amount monthly, so next year you have the money set aside.
I use YNAB to do this too. I'm able to enter my yearly goal, and YNAB will tell me automatically how much I need to save each month to reach my goal. Obviously, the math is simple, but it acts as a good reminder to put aside the extra funds. Below is a screen shot of what this look like:
You can now see that there are many costs to consider aside from the mortgage payments. They can be really significant! The best way to look at them is monthly, even if you pay annually. Property taxes is a great example of an expense that creeps up and devastates cash flow. Everyone has 365 days notice to plan for next year's property taxes but few make it a priority and experience unneeded stress when the bill rolls in - best to set this money aside month by month instead.
Now, that you have your housing costs in order, you can turn your attention to your vehicle, gas, its' insurance, groceries, entertainment, clothing, haircuts, vacations, Christmas. UGH!