When you put together your budget for purchasing a home, make sure you factor in an evaluation of the annual costs associated with the property. Here’s how.
Do the exercise of listing the recurring annual fees associated with a $235,000 house, purchased with a down payment of $20,000 (with the HBP) and a mortgage of $215,000 amortized over 25 years with a fixed interest rate of 5.3%.
Note that the data and the estimated costs provided here are for reference purposes only, and will vary based on the value of your home, the area you live in, the utilities you use and the type of financing you choose.
In the case of a revenue property, also consider the rental income and expenses, as well as the taxes you’ll pay or receive.
Property tax is based on the market value of the building and on the tax rate of the municipality (these two values fluctuate). It includes municipal and school tax (payable in a single instalment or multiple instalments). Sometimes, municipal tax includes a sector tax (for the construction or renovation of local infrastructure) that only the residents of a particular sector will pay over a specific period of time.
Annual amount to allocate to taxes: $4,260
Monthly breakdown: $355
Comfort comes with a cost, which can vary depending on the size and location of the house, and how energy efficient it is. For an existing home, ask to see the seller’s electricity and heating bills to better estimate what these costs will be. You can also get this information from Hydo-Québec or Énergir.
Annual amount: $1,500
Monthly payment: $125
The amount to budget depends on the number and type of services you want to subscribe to. If the property is in a more remote area, you may have to pay supplemental fees to access certain services.
Annual amount: $1,200
Monthly payment: $100
Home insurance is a requirement if you have a mortgage. The amount depends, among other things, on the cost of rebuilding the house, the residential sector it’s in (Is the area a target for robbery? Is it close to a fire hydrant or fire station?), as well as the number of recent claims you’ve made. Property insurance can therefore end up costing a lot more, or exactly the same as rental insurance.
Annual insurance cost: $675
Monthly payment: $56.25
Houses need regular upkeep. In case of an existing house, you can rely on the home inspection report to give you a good idea of the work you’ll need to do in the short term. Depending on how well-maintained the house is, this cost can vary enormously.
Annual reserve: $3,750
Monthly amount: $312.50
These fees apply only to divided co-ownerships, undivided co-ownerships and townhouses and vary depending on the services they include and the maintenance costs of the building (ranging from a few dozen dollars to hundreds per month).
Annual amount for a single family home: $0
The Home Buyers’ Plan (HBP) facilitates the purchase of a first home by allowing you to withdraw funds from your RRSP to be used as capital for a down payment. However, this capital must be reimbursed to your RRSP within a maximum of 15 years, starting on December 31 of the second year following the withdrawal. That said, it’s still smarter to account for repaying the minimum amount from the get-go, if you want to be able to properly evaluate the true value of the annual costs you’ll be contending with in the future.
Annual reimbursement: $1,333
Breakdown per month: $111
Mortgage payments obviously need to be included in the budget. Aside from the capital you’ve borrowed, it’s the interest rate (fixed or variable) that influences the amount you’ll pay each month. If you have a CMHC mortgage insurance, the amount of the mortgage generally includes your premiums. If the interest rate on your mortgage is low, calculate your payments at a slightly higher rate to make sure you’ll be able to handle an eventual rate increase.
Amount allocated to the reimbursement of your mortgage each year: $16,068*
Monthly mortgage payments: $1,339
Mortgage insurance is a good way to protect yourself against unexpected life events. This insurance can provide you with financial protection in the event of a prolonged work stoppage caused by cancer or disability, for example. Note that life insurance is pre-requisite for disability and critical illness coverage.
Annual insurance cost: $2148
Monthly payment: $179
* This amount varies depending on the property evaluation.
** This amount varies depending on the condition of the house.
*** This amount varies depending on the neighbourhood and reconstruction value of the house.
**** This amount varies depending on the interest rate granted by the financial institution you chosen. The interest rate here is a 25 years fixed rate of 5.3%.
***** Fees are based on a male and female, 32 year old non-smoking couple. This amount varies according to the age, gender, smoking status and coverage chosen.
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