Why Your Paid-Off Home Still Costs $11,000 a Year

true costs of owning a homeIt’s the dream of most homeowners to pay their mortgages off in full and own their homes outright. And with the availability of low mortgage interest rates on 10- to 15-year terms, it’s a goal that many people can now achieve.

However, just because you’re through with your mortgage loan, doesn’t mean that home expenses stop. You might be surprised to see that a lot of your income still goes to covering housing costs. Here are some of the ongoing, hidden costs of owning a home.

The True Cost of Owning a Home

Whether you are a first-time homebuyer or a homeowner who is working on paying off his mortgage early, it’s helpful to keep in mind that homeownership comes with more expenses besides a mortgage loan. If you take the time to consider some of these often-forgotten costs of owning a home, you can budget and make sure you’re financially prepared to cover them.

Utilities and HOA Fees

All your utilities — water, gas, electric and trash  — will still need to be paid once you’ve paid off your mortgage loan, as will cable or satellite TV, internet, and land line bills, if applicable. For the average American family, energy bills alone add up to $6,088 annually, according to the American Coalition for Clean Coal Electricity.

Some people live in communities with homeowners associations (HOAs). Even though you’ve paid off your mortgage, you will still be responsible for HOA fees, which can vary widely between neighborhoods.

Property Taxes

While you might own your home outright, you will still be responsible for paying property taxes to your local city, county or municipality, which come to a national average of $1,180 per year, according to the U.S. Census Bureau. These are generally calculated based on a percentage of the assessed value of your home, and failure to pay them can result in a tax lien – or even the loss of your home.

Save for Your Future

With home values decreasing over the last few years, you might be paying more in property taxes than necessary. The National Taxpayers Union found that between 30 and 60 percent of properties in the U.S. are assessed at a higher amount than their current value. You can appeal the assessment by compiling listings of comparable properties, blueprints, repair estimates and photographs to the assessor for review. While you wait for a decision, be sure to pay your taxes to avoid penalties.

Homeowners Insurance

When you had a mortgage, your financial institution required that you carry property, or homeowners, insurance. While it’s not required once you have a mortgage paid in full, it’s still a smart idea to maintain your insurance coverage. The Federal Reserve estimates that homeowners insurance costs between $300 to $1000 annually.

You can decrease your premiums by shopping around by carrier, raising your deductibles, or combining your homeowners, automobile and other coverage with the same carrier. A good rule of thumb is to purchase replacement-value insurance to cover the increased cost of building materials if you decide to rebuild after a disaster.

Basic property insurance will not cover damage to your home from an earthquake, landslide, sinkhole, flood and other water damage, hurricane or nuclear incident. You can purchase additional insurance riders to help protect you from these perils. Depending on your home and the area you live in, additional coverage might increase your insurance premium by several thousand dollars a year.

Ongoing Home Maintenance and Remodeling

It would be wonderful if our houses were self-sustaining and never needed a fix up. However, we all know from the many weekends spent working in the yard, sanding and painting the fence, or putting up the storm windows, that’s just not the case.

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Ongoing home maintenance will still be one of the true costs of owning a home. Some experts recommend that homeowners plan to spend up to 1 percent of their home’s value on annual maintenance and repair costs — around $2,729 a year using the average price of a new home sold in the U.S. in 2010 reported by the U.S. Census Bureau.

According to HomeWyse.com, the average cost to paint a home in 2013 was $2.68 to $4.60 per square foot. A new roof can cost anywhere from $2,000 to $12,000 based on age, pitch, choice of materials and labor. Brand-new replacement HVAC systems can run from $5,000 to $10,000. And don’t forget to factor in the gardening or house cleaning services you enjoy, if applicable.

At some point, you might decide you want to remodel your kitchen or bathroom, add on to your home, or complete other home renovations. Remodeling magazine’s 2013 Cost vs. Value Report indicates that the average $15,782 bathroom remodel will add $10,295 to your home’s eventual resale value; a $53,931 full kitchen re-do will yield $37,139 in value; and a $101,873 master suite addition will add $64,390 to your home.

Having a mortgage paid in full is a goal many people share, but they might get so caught up in this goal that they forget to plan for other home costs. In all, the hidden costs of owning a home run about $11,000 a year for the average homeowner. As part of your financial plan, it’s good to realize the hidden costs of owning a home so you can truly enjoy being mortgage free.

Save for Your Future


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