Beware the hidden costs of home ownership in Canada

Thinking of making the switch from renting to home ownership?

While buying a home is often touted as a way to save on your cost of living, the true cost of ownership goes beyond your monthly mortgage. From closing costs and property taxes to ongoing maintenance and unexpected repairs, these additional costs can add up quickly.

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Below, I’ll break down some of the less obvious financial obligations of home ownership, so you can plan for the long-term costs and avoid unpleasant surprises.

More than a mortgage payment: what to expect as a new homeowner

As the Bank of Canada continues to cut interest rates, many prospective home buyers are looking to the near future as a good time to get into the market. If you’re buying a new house, one of the first expenses you’ll have to factor into the total cost of the house are the closing costs. These are all of the costs required to close on the deal, including:

• Realtor’s commission
• Bank underwriting fees
• GST/HST and QST sales tax
• Legal fees

According to the Canada Mortgage and Housing Corporation (CMHC), closing costs can often range between 1.5 and 4 per cent of the total cost of the house. If you’re looking at a $500,000 home, for example, your closing costs could be as much as $20,000 in addition to the interest rate.

Now, let’s take a closer look at some of the other financial responsibilities you’ll have to take on as a homeowner.

1. Home insurance

Similar to car insurance, home insurance is designed to pay for damages or total loss in the event of unplanned disasters or accidents such as:

• A fire
• Tree falling on the house
• Flooding
• Roof collapsing under snow

Often, your home insurance premium may be rolled into your mortgage payment.

2. Mortgage insurance

Mortgage insurance is another type of insurance that’s often required of first-time home buyers. Through the CMHC, home buyers can qualify to make down payments as low as 5 per cent (instead of the 20 per cent down payment required by traditional lenders).

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However, as a stipulation, the CMHC requires home buyers to maintain mortgage insurance. This insurance protects the lending bank in the event that the homeowner falls on hard times and is unable to make their mortgage payment or misses payments.

3. Appliance repairs and replacement

One of the nice things about renting is that your landlord is usually required to maintain, repair, and replace your home appliances. Washers, dryers, refrigerators, A/C units, heaters, and more can all cost hundreds (or even thousands) of dollars to replace. Even basic repairs will run you a minimum of $100.

When well-maintained, quality appliances can last anywhere from five to 15 years. Eventually, though, they will need replacement.

4. Landscaping and snow removal

As a homeowner, you’ll bear the responsibility of maintaining the property your home sits on. From landscaping and gardening in the spring and summer to snow shoveling in the winter, you’ll either have to buy all of the necessary tools yourself or pay a company to take care of it for you.

5. Property taxes

As a property owner in Canada, you’ll be required to pay annual property taxes to your local government. These are typically calculated based on the appraisal value of your home and property.

Failure to pay these property taxes could result in the government foreclosing on your home.

6. Home repairs and maintenance

You’ll need to account for occasional home repairs. For example, you’ll typically need to replace your roof every decade or so which typically costs a minimum of $5,000.

Unless you’re handy, you’ll also have to pay professional plumbers and electricians to fix leaky faucets, short circuits, malfunctioning garage doors, and other unexpected expenses that come up.

Is buying a home worth it?

With all of these ownership costs, you may be wondering if buying a home is a good idea after all. Renting is easy, convenient, and gives you greater mobility if you ever need to move for work or family reasons. As a renter, though, you’ll have to contend with ever-increasing rental rates.

While homeownership comes with additional financial responsibilities, it can be worth it for individuals and families looking for more space, personal freedom, and a place to truly call home.

Just make sure that you don’t forget to account for all of the costs of homeownership - not just your basic mortgage payment.

Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers at Blueprint Financial