The hidden costs of home ownership

Buying a house or apartment is certainly not a cheap exercise.

Buying a house or apartment is certainly not a cheap exercise. And the cost of the property itself isn’t even the whole package, as there’s a long list of hidden expenses in purchasing and then maintaining your new home. We’re covering them below, so you don’t get caught out.

Pre-purchase expenses

Doing your due diligence is imperative when it comes to considering whether or not to buy a property you want to make your new home. For each property, you must have a professionally conducted building and pest inspection.

Unless you’re buying in a state or territory like the ACT (where sellers are responsible for building and pest inspections), you might need to spend around $600 a few times over if you don’t manage to secure the first or second home you want to buy.

You’ll also have conveyancing fees (from around $1,800 plus), and mortgage establishment fees with your bank or lender.

Of course, one of the biggest expenses comes from stamp duty. This is a government tax that is charged on every property transaction in Australia. It varies between states, and is dependent on the property’s value, whether or not it’s your primary residence, and your own residency status.

In some states, first-home buyers are exempt, but it’s worth calculating what the cost could be so it doesn’t catch you off guard. Want to buy a $600,000 house in Queensland? Your stamp duty will be around $13,000. This includes a mortgage registration fee and property transfer fee.

Starting life in your new home

For first-home buyers, it can be a real shock to discover all the costs that come knocking on your new door just after you’ve just paid out your life savings to buy a house.

You’ll definitely need to have house and contents insurance, to protect your building and your furnishings and fixtures. This can cost anywhere from $400 a year for a tiny apartment to $5,000 for a house. The cost will depend on the cover required for your contents, the kind of property you’ve bought, and whether or not your region is at high risk of natural hazard events (like floods or fires).

If you don’t have at least 20 per cent deposit for a property, you’ll need lender’s mortgage insurance (LMI) as well. A few different factors go into calculating this cost, but if you buy a $600,000 house, with a 10 per cent deposit, you’ll be paying around $13,000 for LMI (as part of your mortgage repayments).

You’ll also have the local council with their hand out for rates for living in their neighbourhood. In Newcastle, the average annual residential council rates are more than $1,500, and that doesn’t include water rates. That’s another four-figure annual bill to add to the pile.

If you live in a property that is attached or semi-attached to others, you’ll be required to pay strata fees. These fees are basically your contribution to the maintenance of ‘shared’ spaces (like foyers, driveways, car parking, gardens, and the exterior of the building, including windows).

Don’t forget the work you’ll want to do on the property in order to make it your own. At the less expensive end of the scale, this could include fresh paint, new carpet and new furniture to complement your new spaces. At the other end of the scale are the kitchen, bathroom and other more substantial renovations or refurbishments. All of these things can certainly add up, so it’s important to consider what money you’ll have left over once you pay your mortgage each month.

Long-term costs of home ownership

Once you’ve settled into your new home, it’s easy to move from mortgage payment to mortgage payment. But over time there are significant financial outlays for home ownership, including ongoing maintenance where you can anticipate spending around 1 per cent of the property’s value each year. And don’t forget council and water rate increases, and updating fixtures and fittings.

However, the biggest ‘hidden’ expense is the interest that is charged on top of the principal amount of your mortgage. As illustrated by this comparison table , the cost of your 25-year, standard mortgage at a variable rate of 4.42 per cent (which is on the low side), a $600,000 loan could set you back nearly one million dollars. That’s $392,343 in interest alone.

If interest rates were to head back to a more normal level of around 6.5 per cent, you’d actually be paying more interest than the original mortgage amount – $12,000 more.

Of course, you can use strategies to reduce your mortgage and the interest but you’ll still pay a hefty amount.

All the above costs could be a really big deterrent to buying property, but the key is to planning ahead before entering into home ownership and having a good understanding of what’s involved. A buyer’s agent is your best professional resource for helping you plan and calculate your overall property purchasing costs.

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