As someone who used to live in my own house, I gathered a bit of information about the associated cost of home ownership. For this post, I would like to share my experience of the matter.
Cost of home ownerships can come in many ways.
- Closing cost (when purchasing the house)
- Moving cost
- Mortgage repayment
- Rates (council and water)
- (Situational) Repair/renovate cost
- (Situational) Body corporate fee
All figures will be based on the following data (close to what I used to pay, but rounded to make it easier to remember)
- Purchase price: $400,000
- Interest rate: 4% pa
- Rental (in the same area): $350 per week
- Council rates: $2000 pa
- Water rates: $800 pa
Starting the journey
To live in one’s home, one needs to buy it first. Here are a quick look at what are the costs to purchase a home.
This, of course, does not include the numerous hours I researched, went to inspections/auctions. But as a rough figure, it is easy to see how much does it take to conventionally take ownership of a house in Melbourne, Victoria (The figure is back in 2016).
Nowadays, there are schemes that help easing the pain when purchasing the first home. For example, you can waive the stamp duty as part of the First Home Buyer scheme; or even be able to borrow up to 95% without triggering Lender’s mortgage insurance. However this is another topic for another time.
For Victoria, there is a way to calculate your expected stamp duty via the government calculator page.
Living in my own house
It is a great feeling of owning a house to live in. Once I moved in, the first cost that I needed to spill out of my pocket is the moving cost. It can vary between $100 to, say a few thousands if you are moving interstate. Luckily, I have a few friends who helped me moving from Ballarat to Melbourne with minimal cost associated. Let’s say it was $600 for hiring movers to do that.
Then, the mortgage repayment kicks in. At $320,000 total mortgage, the P&I repayment each month came down to $1,528. Which means I needed to fork out $18,336 each year from after tax income to satisfy the mortgage repayment. Once in a while you can call the bank to ask for a reduction in rates, which can happen when RBA reduces interest rate, or the bank is running a promotion.
After signing the contract, I was advised to purchase home and content insurance, which came down to about $140 per month. This is because once I sign the contract, all damages (if occur during settlement time) are my responsibility. Since my loan was with ANZ, I had a choice to bundle car insurance with home and content insurance to have a better premium. You can take a look at this to reduce the overall insurance costs.
After a while, local council and water company will start sending you bills regarding the rates. In my case it was $500 per quarter for council rates and $200 per quarter for water rates. These fees you need to pay as part of home owner costs. There is no negotiation on this part.
My house was an old one, so repair and maintenance is kind of compulsory. I normally fork out about 10% of the expected rental in the area, which was $350 per week at the time. Each month the rental income would be $1,516.66, which means I needed to keep about $151 per month, ready for repair. This, should be a part of home ownership 101.
This came in handy when the hot water system failed ($5,000 replacement), and the cooking stove “exploded” ($1,000 replacement). Of course if you live in a brand new house, there is less chance to repair anything. You can ignore this part.
Another cost that can be considered is body corporate fee. This happens when you live in an apartment complex, or a block of units. There is a fixed fee that the body corporate charges each unit, and the owner of those units have to pay for it. The money is used to maintain common areas, such as drive ways, common gardens, etc.
Once thing to note is that you need to read the body corporate paper carefully. Sometimes the body corporate already purchases home insurance. In this case you just need to purchase content insurance. However check with your insurance provider before deciding.
The above is a summary of running/maintaining a house for a year. This is not meant to scare you, but to prepare you for what is to come when you decide to settle down and claim home ownership. Figuring out all the numbers before committing is the key of financial stability.
That is all my experience regarding the financial side of owning my own house. These figures of course not accounting for any capital appreciation aspects of owning real estate. However we can go back to it at another time.
By Tuan Nguyen