Real Estate Blog

Buying a home is a significant financial commitment, and while the mortgage is often the largest expense, it's far from the only one. To ensure you're fully prepared for homeownership, it's essential to understand the various costs beyond your mortgage that you'll need to budget for. This article breaks down these additional expenses to help you plan effectively and avoid any financial surprises.

 1. Property Taxes

Property taxes are a recurring cost that homeowners must pay annually. These taxes are levied by local governments and fund services such as schools, road maintenance, and emergency services. The amount you owe is based on the assessed value of your property and the local tax rate.

• Tip: Check with your local municipality for an estimate of property taxes for homes in your area. Be sure to include this amount in your monthly budget.

 2. Home Insurance

Home insurance protects your property and belongings from risks such as fire, theft, and natural disasters. It also provides liability coverage in case someone is injured on your property. The cost of home insurance varies based on factors such as the size of your home, its location, and the coverage level you choose.

• Tip: Shop around for home insurance quotes and consider bundling your home and auto insurance for potential savings. Review your policy regularly to ensure it meets your needs.

 3. Utilities

Utilities are essential services that keep your home running smoothly. These typically include:

• Electricity: The cost of powering your home’s lighting, appliances, and electronics.

• Natural Gas or Heating Oil: Used for heating your home and, in some cases, for cooking.

• Water and Sewer: Charges for water usage and sewage services.

• Internet and Cable: Costs for internet access and television services.

• Tip: Estimate your utility costs based on your home size and usage patterns. Track your expenses over a few months to get a more accurate picture.

 4. Maintenance and Repairs

Homeownership comes with ongoing maintenance and repair responsibilities. Regular maintenance helps prevent costly repairs and keeps your home in good condition. Common maintenance tasks include:

• Cleaning Gutters: Preventing water damage and roof leaks.

• Landscaping: Maintaining your yard and garden.

• Seasonal Maintenance: Preparing your home for different seasons (e.g., winterizing pipes).

Additionally, unexpected repairs may arise, such as fixing a leaky roof or replacing a broken appliance.

• Tip: Set aside a maintenance fund, typically 1-3% of your home’s value annually, to cover both routine and unexpected repairs.

 5. Homeowners Association (HOA) Fees

If you live in a community with a homeowners association (HOA), you’ll likely be required to pay HOA fees. These fees fund the upkeep of common areas and community amenities, such as pools, parks, and clubhouses. HOA fees can vary significantly depending on the community and its services.

• Tip: Review HOA fee structures and understand what’s included before purchasing a home in an HOA-managed community. Factor these fees into your overall budget.

 6. Closing Costs

When buying a home, you’ll encounter closing costs, which are one-time expenses incurred during the home purchase process. These can include:

• Legal Fees: Costs for hiring a real estate lawyer or notary.

• Land Transfer Taxes: Taxes based on the purchase price of the home.

• Home Inspection Fees: Fees for inspecting the home’s condition before purchase.

• Appraisal Fees: Costs for appraising the home’s value.

• Tip: Closing costs typically range from 1.5% to 4% of the home’s purchase price. Be sure to budget for these expenses and review the breakdown with your real estate agent.

 7. Moving Costs

Moving to a new home involves various expenses, including hiring professional movers, renting moving trucks, and packing supplies. The cost of moving can vary based on the distance and the amount of belongings you need to transport.

• Tip: Get quotes from several moving companies and plan your move during off-peak times to potentially save money. Consider DIY options for a more budget-friendly approach.

 8. Property Upgrades and Renovations

Many homeowners invest in property upgrades and renovations to improve their home’s functionality and value. These can range from minor updates, like painting and landscaping, to major renovations, such as kitchen remodels or adding a new bathroom.

• Tip: Prioritize upgrades based on your needs and budget. Obtain quotes from contractors and set aside funds for future projects to avoid financial strain.

Conclusion

Understanding and budgeting for the costs beyond your mortgage is crucial for successful homeownership. By accounting for property taxes, insurance, utilities, maintenance, HOA fees, closing costs, moving expenses, and potential upgrades, you can create a comprehensive budget that prepares you for the financial responsibilities of owning a home. Being proactive and informed will help you manage these costs effectively and enjoy your home with peace of mind.

Canada’s central bank has made a third cut to its overnight lending rate this year, lowering borrowing costs for existing and aspiring homebuyers yet again.

In its scheduled September 2024 announcement, the Bank of Canada dropped the target for the overnight lending rate by 25 basis points to 4.25%.

In July, Canada’s Consumer Price Index rose 2.5% year-over-year, increasing at the slowest pace since March 2021. Continued easing of inflationary pressures were a contributing factor of the Bank’s decision to lower interest rates by another 25 basis points.

“Our decision reflects two main considerations. First, headline and core inflation have continued to ease as expected. Second, as inflation gets closer to target, we want to see economic growth pick up to absorb the slack in the economy so inflation returns sustainably to the 2% target. Inflation continues to reflect the push and pull of opposing forces. Overall weakness in the economy continues to pull inflation down. But price pressures in shelter and some other services are holding inflation up,” said Tiff Macklem, Governor of the Bank of Canada, in a press conference with reporters following the announcement.

“If inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy rate. We will continue to assess the opposing forces on inflation, and take our monetary policy decisions one at a time,” he continued.

Three cuts down – more to go?

The third cut to the overnight lending rate comes at the start of the fall housing market, traditionally a time when buying and selling activity picks up across Canada. For those who have been sitting on the sidelines waiting for cheaper borrowing costs, another decrease to the overnight lending rate may be the extra sign of encouragement they’ve been waiting for.

According to a recent Royal LePage survey, conducted by Leger,1 51% of Canadians who put their home buying plans on hold the last two years said they would return to the market when the Bank of Canada reduced its key lending rate. Eighteen percent said they would wait for a cut of 50 to 100 basis points, and 23% said they’d need to see a cut of more than 100 basis points before considering resuming their search.

For today’s first-time homebuyers who face many financial obstacles on their path to home ownership, lower interest rates mean lower monthly mortgage payments and improved affordability. Another Royal LePage survey, conducted by Hill & Knowlton,2 revealed that three quarters (74%) of those in the next generation of homebuyers – Canadians belonging to the adult generation Z and young millennial cohort, born between 1986 and 2006 – say that owning a home is a priority for them and a milestone they hope to achieve in their lifetime. Buoyed by the prospect of lower borrowing costs, nearly one in five respondents (18%) who are planning to purchase a home say that their timeline to buy is within the next three years, and another 13% plan to buy in three to five years.

“The Bank of Canada continues its delicate balancing act, gradually easing the economic drag of high interest rates as the economy cools. With inflation now at its lowest point in three years, policy-makers are shifting their focus to jobs and housing,” said Phil Soper, president and CEO of Royal LePage. “For first-time homebuyers, the key question is whether to buy now or wait. Home values have largely plateaued this year, and improved affordability due to lower borrowing costs has benefited many. However, once the backlog of sidelined buyers is released into the market, pent-up demand will drive prices higher. This fall, we can expect more cautious Canadians to take the plunge, while those willing to take on the risk might hold out for further rate cuts.”

The Bank of Canada will make its next announcement on Wednesday, October 23rd.