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About a year and a half ago, we paid off our mortgage. The issue of whether you should pay off your mortgage early or invest has always been a hot topic in financial circles, but I can tell you this much:
We haven’t regretted our decision to pay off our mortgage. Not even once.
Of course, just because we’ve paid off our mortgage doesn’t mean that we’re living for free. We still face a number of expenses, including property taxes, routine maintenance, homeowners insurance, etc. So just how much do these things really cost?
Let’s start with property taxes. Property taxes vary widely based on location, but around here they average about 1% of a home’s assessed value per year. Unfortunately, the only real way to combat this bill – aside from moving to a less expensive home – is to appeal your assessment. The good news is that this can be done. In fact, I’ve successfully appealed our assessment on more than one occasion.
Next up, insurance. Once again, rates vary based on a number of factors. While you could technically drop your homeowners policy once your mortgage is paid off, you’d be a fool to do so. You can, however, save on homeowners insurance by shopping around, increasing your deductible, etc. In our case, homeowners insurance runs roughly 0.2% of the value of our home per year.
Another big issue is maintenance. I’m talking here about things like painting, pest control, replacing your carpet and appliances, etc. The general rule of thumb is that you should budget roughly 1-2% of the value of your home per year for ongoing maintenance. Some years will be less, and others will be more – possibly much more.
In the six years we’ve lived in our house, the biggest maintenance issue we’ve dealt with has been replacing our water heater. Looking ahead, however, I’m expecting to have to replace the roof sometime in the next ten or so years.
There are, of course, other expenses that I haven’t factored in here such as lawn maintenance – either paying someone to cut your grass, or buying and maintaining a mower and associated equipment so you can do it yourself – utilities, HOA fees, etc. These things vary so widely based on your circumstances, however, that it’s hard to come up with a general rule of thumb.
Combining just the property taxes, homeowners insurance, and general home maintenance, we arrive at a rough estimate of 2.2%-3.2% of our home’s value per year. Given that our house is worth somewhere in the neighborhood of $325k, that means we’re facing roughly $7k-$10k in annual housing costs even in the absence of a mortgage payment, and that’s without considering utilities or lawn care.
I mainly bring this up to combat the overly-simplistic view that once you pay off your mortgage, you’ll be essentially living for free. The reality is that even without a mortgage payment, you’re still likely to face significant housing-related expenses.
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