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What Are Home Carrying Costs?

When people think about owning a home, the only cost that comes to mind for many is the mortgage payment. Since the mortgage is by far the largest monthly expense you’ll have, it makes sense to consider it a priority.

But when the other costs aren’t considered, you may find that your cashflow is very tight after purchasing a home. While your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios are used to calculate your home affordability, they leave out carrying costs. This is good for your total affordability as it allows for a higher purchase price, but it means you still have to set aside some of your budget every month. If you aren’t prepared, you might not have enough money to go around.

Luckily, carrying costs are easily estimated. We’ve collected years of data for different carrying costs, so we know what most homeowners will need.

 

What’s the difference between home affordability and carrying costs?

Your home affordability is an estimate of how much house you should be able to afford based on your income and current debt. There are two measurements used to calculate your affordability: GDS and TDS.

You can read more about GDS and TDS here.

What neither of these ratios calculate, however, is what you do with your leftover money. Generally, you’re free to do whatever you want – it is your money, after all. But everyone has bills to pay, like groceries, gas, insurance, and cell phone plans. These expenses aren’t included in your affordability calculation, even though it does affect how much money you have left over every month.

Your GDS might assume that you can afford monthly mortgage payments of $1,460 based on a $50,000 salary ($4,166 monthly). That hypothetically leaves you with $2,706. But what about your cost of living?

First we have to see what your actual take home pay is after taxes (GDS ignores taxes). According to this calculator, in Ontario a salary of $50,000 is just $38,979 after taxes. Let’s round up to an even $39,000. That breaks down to $3,250 per month. From that, you take away the mortgage payment of $1,460 and you can see that you’re left with $1,790 per month for all your expenses like food and car insurance/transit.

But your house costs more than just the mortgage payments. You also have to pay property taxes, utilities, heating, cable/internet/phone, and sometimes parking fees or condo fees. Some of those costs are included in your GDS calculation, but many aren’t.

 

Common Carrying Costs For a $300,000 Home

Carrying Cost

Description

Cost per Month

Mortgage Payment

This will be the biggest monthly expense when it comes to your home.

A portion of your monthly payments go towards paying the interest, and the rest goes to paying down the principal. As you pay your mortgage, more and more of your payment will go towards your principal. However, your payment remains the same.

$1,402

Property Tax

Every year, you're taxed on the assessed value of your property. You can pay it in full once per year if you like, but most jurisdictions allow you to pay in monthly or semi-monthly (every other month) installments.

$160

Utilities

You can't live in your home without necessities like electricity, heat, and running water. All of that costs money to operate. There are ways to save on all of these (such as installing smart home technology).

$150

Telecoms

While cable cutting is popular among younger Canadians, most households still subscribe to some sort of cable package. Not only that, nearly everyone in Canada has an internet plan, which can cost as much as $50 all the way to $100 or more.

$100

Municipal fees

Services like garbage disposal and sewage are charged to households.

$40

Condo fees

If you own a condo, you'll have to pay condo fees. These pay for common expenses like hallway cleaning and elevator maintenance, as well as building up the condo's reserve fund (which they use for major repairs and renovations).

$400

Home Maintenance

No matter how good care you take of your home, eventually something will break. Unfortunately, things that break in your home tend to be expensive. Roof repairs, water heater replacements, and new appliances are all expensive items that may not be covered under your home insurance policy, and will have to be paid for on your own.

$250.00

Home Insurance

Home insurance will be required by your mortgage lender for at least the replacement cost of your home. It's also useful for insuring expensive contents or for helping pay for major repairs after water or fire damage.

$50

 

Monthly Cost for Detached Home

$2,419

Monthly Cost for Condo

$2,272

 

If you own a condo, your “home maintenance” costs will be lower since you don’t have to pay for upkeep like roof repairs or window replacements. The downside is you’re still technically paying for it through your condo fees. In some cases, your condo fees will also cover your utilities, but that depends on your building.

 

Include Carrying Costs In Your Budget

When you’re thinking about how much home you can afford, don’t forget to include the full carrying costs into your monthly budget. Despite your mortgage only cost $1,402, your actual housing cost can be $1,000 more per month. On a $50,000 salary, you could have just $831 left over for all your other expenses and entertainment.

Before committing to a mortgage, be sure to talk to an expert mortgage broker who will break down the full monthly cost with you so you don’t find yourself house poor like so many Canadians.


Chris Chris 04/17/2019
Canadian personal finance buff and all-around writing enthusiast, Chris loves breaking down complicated money ideas to show that they're really not so complex. 
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