Calculating cost of home ownership
Most people don’t think of this right away, but bigger
financial troubles can follow once you have moved into the new house. Yes, you
expected a slightly larger cost for utilities and maintenance, but not as much
as the new house seems to demand. And what’s with this enormous property tax
bill – surely the town administrators have made a mistake? Who knew property
insurance could get so much bigger? The excitement of the bigger house starts
to fade away quickly with these unexpected and unwelcome surprises. Being in
this situation is no fun.
So, we have compiled a handy tool that would allow you to
compare the costs of ownership of houses at two different price points – allowing
you, to say it in a fancy way - do predictive analytics. Using an example of
a $700k house and a $1M house, you will see in the tool, this decision has
serious impact on your finances. This powerful analysis will show you how
someone in this situation can easily go from a comfortable 18% saving to a
negative savings in a splash. We have also included a PITI (principal,
interest, property tax, and insurance) calculation to help you right-size the
housing decision.
This calculation is in Excel,
so with some spreadsheet savvy, you can customize it for your situation. Some
tips to keep in mind as you work through the numbers:
-
Input cells are colored green. Calculation cells
are colored pink.
-
Housing costs calculations (mortgage, insurance,
property tax) are presented on separate sheets (also included in the tool).
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All the spreadsheets are linked to each other,
so be careful when changing numbers.
-
If you find any errors or have suggestions,
please feel free to let me know in the comments section of this blog.
1 - Family
Budget Sheet
- Enter your information in Green colored cells.
- Be sure
to enter all information and scroll down to determine if the planned upgrade or
move will be a breeze or a burden.
2- Mortgage
Calc Current and 3 – Mortgage Calc Planned Sheets
-
There are two check totals on top of each
mortgage sheet set to zero. You want to make sure they remain zero as you make
changes to the sheets.
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As with all projections, these numbers are
highly sensitive to input assumptions. Take some time to review and understand
the assumptions.
-
Any conclusions based on these numbers are
subject to interpretation and potential errors, so be careful. Your situation
may require far more analysis, special considerations, and discussions with
your financial and tax advisors.
We all love the idea of owning a house, putting down our
roots, and contributing to the community. But, as Jane Austen said,
Hope this tool helps you find comfort knowing that you have
bought the right sized house.
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Photo credit: 1
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