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The True Cost of Homeownership

July 05, 2017
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Nearly one-third of the average US consumer’s budget is dedicated to household-related expenses, surpassing the second and third largest categories, transportation (17%) and food (13%), combined. Most people substantially underestimate the cost of owning a home, which could end up putting their retirement on the line. To determine the true cost of homeownership, you need to consider not only your mortgage payment, but also utilities, maintenance expenses, insurance premiums, and property taxes. Let’s take a look at the major household expenses that could levy your retirement income.

Mortgage repayment: beware of interest

The amount you actually pay over the lifetime of your mortgage could be near twice the amount you initially borrowed because of interest charges. Let’s plug in some numbers. In January 2017, the average loan amount sought by home buyers was $309,200. A 30-year fixed mortgage with a 4.1% annual interest rate, would end up costing you nearly $230,000 in interest alone. If you’re gearing up for retirement, this amount could be used as a sizable nest egg instead.


According to the US Energy Information Administration’s most recent data, the average monthly energy bill was $114 in 2015. This cost will fluctuate depending on several factors: where you live, the time of year, use of energy-efficient appliances, and your home’s square footage. Remember, the bigger the house, the bigger the bill.

Maintenance, repairs, and upgrades

Even in brand new homes, things will break. So, how much should you set aside for repairs and general upkeep every year? A good rule of thumb is about 1 to 2 percent of the value of your home. If you own a home valued at $300,000, for example, you should be putting away $3,000 to $6,000 each year. Even if you don’t spend this amount every year, there will be high-cost repairs that will gouge your savings, such as a roof repair or replacement of old appliances.

Insurance premiums: homeowner’s and hazard insurance

If you borrow money to buy a home, the lender will probably require you to purchase a homeowner’s insurance policy. Even if you’re not obliged to do so, insurance can mitigate the financial impact of unexpected damages. The average annual cost of homeowner’s insurance in the US is $964. But that’s not all. Most homeowner’s insurance policies don’t cover disasters such as flooding, earthquakes, volcanic eruptions, and tsunamis. If you live in a flood zone, for example, you could end up paying nearly $700 per year for flood insurance. And if you live in an area prone to earthquakes? Californians spend an average of $1.75 per $1,000 of coverage. For a home worth $250,000, this amounts to $437 every month.

Property taxes

In 2016, each US homeowner paid an average of $3,296 in property taxes, which equates to an average 1.15% effective tax rate. The amount you owe will differ, however, based on two factors: the assessed value of your home- not the original purchasing price- and location. For example, though Californians have a lower effective tax rate, about 0.77%, they paid $4,783 in property taxes because the average home value is over $600,000.

Should I downsize when I retire?

Downsizing for retirement could help you set aside the money you need to enjoy your golden years in comfort. It’s not just about cutting costs though; the amount you save from downsizing could be diverted to investment accounts with the potential to make you a millionaire. If you’d like to learn more about preparing for retirement, contact our team of retirement income specialists. We’ll not only show you how to protect your savings but help you grow your income through sound financial investments.