Many homeowners have the goal of paying off their home faster than their mortgage dictates. That was one goal our family had in mind, even when we took on a shorter-term, 15-year, fixed rate mortgage. And while this can be a respectable goal to shoot for, even when a home mortgage is paid off in full, it doesn't necessarily mean that owning a home suddenly becomes cheap. Sure, it might become cheaper, but there are still a variety of costs that can go along with home ownership outside the standard monthly mortgage payment.
Paying off a mortgage; a good first step
According to Creditloan.com, "After 30 years of making payments, a homeowner with a $240,000 mortgage loan will have paid over $580,000 on his/her house."
Therefore, paying off a mortgage faster than necessary can be a good step to decreasing the costs of home ownership; however, it doesn't necessarily mean things are going to be cheap thereafter.
Long-term care and appreciation…or lack thereof
Like people, the older a home gets the more problems it can have. So just because a home is paid for, it doesn't mean that there won't be costly issues cropping up. It can therefore pay to have a long-term budget for these issues. And while it's great if you can go along for a year or two with no issues, this doesn't mean that the next year you might not be hit with a $10,000 or $15,000 bill for a new roof, or a several thousand dollar bill for an HVAC system replacement all at once.
Many people fail to think this way about long-term home care, instead choosing to focus on the appreciation that they might recognize over the years on their home's value. But again, a home isn't necessarily guaranteed to rise in value over time or rise as much as expected. While many experts give 2 to 3 percent appreciation as a historical norm for home values, the region, home size and style, area amenities, the quality of schools, and a variety of other issues can come into play in how a home's value increases or decreases over time.
Property taxes and insurance
According to an article from the San Francisco Chronicle,, "According to the Federal Reserve Bureau, the average cost of an annual premium for homeowners insurance is between $300 and $1,000. For most homeowners, the annual costs for a homeowners insurance policy can be estimated by dividing the value of the home by 1,000, then multiplying the result by $3.50."
This is yet another cost of homeownership that never goes away and is likely to rise each year over time.
Loss of mortgage interest deduction
While it might only range from a few hundred to a few thousand extra tax dollars, money is money, and the mortgage interest deduction can be a nice little perk of having to carry a mortgage. However, once that mortgage is gone, so is the deduction, and being prepared to pay some additional taxes might come as a repercussion. In fact, in our situation, due to not paying a larger sum in interest as we did on our first home, we no longer itemize our taxes; and without the interest deduction, we end up paying more. Given the choice though, I'll take the absence of a mortgage over the slightly bigger tax bill.
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The author is not a licensed financial or real estate professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
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