How to Estimate the Recurring Costs of Owning A House?

by Dori Tery on May 13, 2013

How to Calculate Your Recurring Costs?

The majority of recurring costs generally consists of monthly mortgage payments, the size which depends on how much you borrow, at what interest rate, and for how long. Basically, the higher the interest rate, and the shorter the length of the loan, the higher your monthly payments. The level of monthly payments to repay a $10,000 loan at various combinations of interest rates and maturities. We can estimate that on a 15 year 6.0 percent, $10,000 mortgage, the monthly payments would be $84.39. If you increased the maturity to 30 years, though, the monthly payment drops to $59.96. Thus, if you are considering a $130,000, 15-year mortgage loan at 6 percent, the payments would be $1097.07 ($130,000/$10,000 x $84.39 = $1097.07). Similarly, the monthly payments on a $130,000, 30-year mortgage loan at 6 percent would be $779.48 ($130,000/$10,000 x $59.96 = $779.48).

Mortgage payments are the primary recurring cost, but they are actually made up of four costs, generally referred to as PITI, which stands for principal, interest, taxes, and insurance. In addition to paying off the loan principal and interest charges, you will need to pay property taxes and insurance premiums These monthly property taxes and insurances payments are generally made along with your loan principal and interest payments and are held for you in a special reserve account, called an escrow account. Funds accumulate over time until they are drawn out to pay property taxes and insurance.

The logic behind an escrow account is this: Paying your insurance and taxes regularly, in small amounts, is less painful than paying them in one large annual lump sum. Lenders often use the total PITI level  to measure an individual’s financial capacity. As a rule of thumb, your PITI costs should not exceed 18 percent of your pretax month income.

Maintenance and Operating Costs?

Whether the house you buy is old or new, big or small, in the country or in the city, you will have maintenance and operating costs. Examples of these costs are roof repairs, new refrigerators, and landscaping. Don’t  forget to plan for these expenses when buying a home. Even home buyers who budget for maintenance and operating costs are still often shocked by their first repair bill or the cost of a Japanese maple stapling!

Read more how use Mortage Lenders of America to buy your dream house.

Read more how use to Worthington Mortgage to own a property.


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