MYTH# 4: Housing Costs Stay Constant

Reality: Only your mortgage payment will remain constant. Other costs can go up every year. And if you have an adjustable rate mortgage, your monthly payment can rise too.

Your mortgage payment is just part of your housing cost as an owner. You also have to factor in the cost of property taxes and homeowners insurance, both of which have been rising significantly in recent years.

  • Property taxes: If you own a $200,000 home and your property taxes are 1.25 percent (the U.S. average is 1.38 percent, with a high of 2.21 in New Hampshire and a low of .40 in Hawaii) then you’ll need to budget around $200 each month just for property taxes.
  • Maintenance costs: Now that you are financially responsible for the upkeep of your home, you’ll need to budget about 1 percent of the cost of your home for repairs and maintenance. For a $200,000 house, this will be more than $150 a month.
  • Private Mortgage Insurance: If you make a down payment of less than 20 percent, you are also going to need to pay around $100 a month in PMI costs.

Homeowners saw annual property tax hikes averaging 4-5% (for a total increase of 18%) between 1997 and 2001.[8] And homeowners insurance rose 7% in 2003 and is expected to increase another 8% in 2004. Since 1999, average premiums have skyrocketed 26%.[9] And if you have an adjustable-rate mortgage, your costs will rise if interest rates go up.

NOTES.

8. NMHC tabulations of the U.S. Census Bureau’s American Housing Survey for 1997 and 2001.

9. Insurance Information Institute. Found at www.iii.org/media/facts/statsbyissue/homeowners/ on April 14, 2004.

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