If you’re thinking about buying a home, one of the first things to consider is the amount of mortgage you’re going to need. But the cost of homeownership involves so much more than your monthly mortgage payment. There are necessary and recurring expenses known as carrying costs that must be considered and factored into your budget to avoid overextending yourself financially and becoming “house poor”.
Carrying costs run over and above your mortgage payment, and they’re associated with the general upkeep of the home. A mortgage is what allows you to own your home, while carrying costs are what enable you to maintain it properly. Make sure you have enough cashflow set aside each month to cover the following expenses.
- The cost of homeownership involves much more than your monthly mortgage payment. There are necessary and recurring expenses known as carrying costs that must be considered and factored into your budget
- A mortgage is what allows you to own your home, while carrying costs are what enable you to maintain it properly
- Regular upkeep will help reduce some of your maintenance costs, but there are also situations such as a leaky roof or a burst pipe that are beyond your control and must be included in your rainy-day fund
Property taxes represent a significant source of income for local government and are used to pay for municipal services such as snow removal, garbage and recycling collection, recreational facilities, road maintenance, etc. Generally paid on a monthly basis (in some instances you can pay a one-time annual fee), your property taxes are based on a number of factors including the value of your property (established through a formal property assessment), its relative value compared to other properties in the area, as well as the size, age, location and construction type of the home. A simple call to your municipal office will provide you with a general idea of the taxes you can expect to pay. See: Property Taxes
If you’re like the majority of Canadians, your home represents the most significant purchase you’ll make in your lifetime, so it only makes sense to protect it. Home insurance covers your house and its contents against damage, vandalism and theft, as well as if someone is injured on your property. Many lenders will require proof that you’ve obtained home insurance before issuing your mortgage – they have a financial investment in the home, so they want to ensure the property is fully covered in the event of damage or loss.
Monthly insurance payments are known as premiums, and are determined by the coverage you need and inherent risk factors. Some considerations include where you live (are you close to water where flooding could be an issue?), the area in which you live (is it considered high risk for break ins?), the construction and age of the home (do you have old wiring that could spark a fire?) and the value of the house and its contents (will the replacement cost of stolen or damaged items be expensive?).
Keep in mind that, if you need to make a claim, there will likely be a mandatory deductible and your rates may increase as a result, so make sure you budget accordingly. You can obtain free, no-obligation online quotes from many insurance companies to compare coverage and premiums.
You can often save on home insurance by bundling coverage of your home with such things as auto insurance
Utilities is the collective term used when referring to the services required to keep your house habitable. This includes power (hydro), water and heating. The amount you pay for each utility depends on a number of factors including the size of your house, the number of people who live in it, whether you have electric or natural gas, whether you have energy-efficient windows and doors, whether you undertake regular maintenance on your furnace, fireplace and appliances, the amount of usage and the time of year.
Cable, phone & internet
You’ll also need to budget for your all-important telecom and media services. If you’re using the same provider for all services, you can save money by asking them for a bundle rate. It’s best to call around to compare rates and packages to ensure you’re getting the best offer that meets your needs.
Be sure to contact some of the smaller, local, independent companies as well as the larger, more common household names. Keep in mind that you may be required to pay one-time hook-up fees, especially if you’re a new customer.
While the joys of owning a home are abundant, there’s also a lot of time and effort involved in keeping it running smoothly. A home is made up of many working parts, well beyond the bricks and mortar. Things can break, fall apart or require ongoing attention. Landscaping and yard work, snow removal, home cleaning, roof maintenance, eaves clearing, and furnace and A/C care are all common examples of household maintenance.
Regular upkeep will help reduce some of your maintenance costs, but there are also situations such as a leaky roof or a burst pipe that are beyond your control. As a result, it’s recommended that you keep a considerable cash reserve to cover both routine and unexpected costs so you’re not left scrambling to pay for them.
To help ensure homeownership doesn’t become a financial burden, make sure you have a realistic idea of what you’ll need to carry it every month, and include additional funds for a rainy day, vacation or special purchase.
If you own a condominium, the cost of maintenance and general upkeep of common spaces, amenities and the exterior of your individual unit are covered by monthly fees that you’re required to pay to the property management company. Condo fees vary and are calculated based on the assessed value of your unit and can increase with inflation. You’ll want to determine what they are and exactly what they cover so you can budget accordingly.
Each month, a portion of your condo fees, along with those of all unit owners in your building or complex, is pooled into a reserve fund to be used for major repairs and renovations. A status certificate will provide you with the amount in the reserve fund and details about how it’s managed.
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