7 lesser-known homeownership costs explained
You’ve done your sums, prepared your deposit, and completed a mortgage calculation. You know how much you can borrow, how much you’ll pay, and what will be left over for furniture, renovations, and a big blow-out house party.
The only thing left to do is make an offer and get your home, right? Not quite, as those home ownership costs are probably a lot steeper than you realise.
In this blog, we’ll look at 7 lesser-known homeowner costs, helping you to prepare for your big purchase.
Mortgage Payment: Beyond Principal and Interest
Before we look at the home ownership costs that you aren’t expecting, let’s address the one that you are: the mortgage payment.
Every month, fortnight, or week, you make an agreed-upon mortgage payment with your lender. The payment constitutes the interest and the principal—interest-only mortgages are also available but principal and interest loans are more common.
The “principal” goes toward clearing the balance while the “interest” is what the bank charges to provide the loan.
Let’s assume that you have a $500,000 mortgage with a 5.5% interest rate and a 25-year term. Your repayments will be $3,070 a month and over the course of the 25 years, you’ll repay $921,131, $421,131 of which is interest. It sounds like a huge sum considering the relatively low-interest rate, but that’s because the 5.5% is charged annually, and 25 years is a long time.
To reduce the repayments and total interest, you can reduce the loan term or increase the monthly payment. Every month that you make a full repayment, you’re meeting your interest obligations. If you overpay anything, all the additional cash will go toward your principal.
In this case, an extra payment of just $100 a month will save you $31,537 in total interest. Increase it to $500 and you’ll save nearly $120,000.
Now that we’ve discussed the often-unexpected cost of interest, let’s address some other costs you might now know about.
