Calculating cost of home ownership

Moving to a larger house is exciting – more space for our belongings, kids in their own rooms, a separate room for guests, larger closets, backyard for barbeques….and the list goes on. Whenever a quick calculation of your new mortgage shows that you can afford the new mortgage without sacrificing any of the other things your family has grown used to, its tempting to go house hunting. This calculation almost always brings a sense of accomplishment in making all this happen while keeping your finances in control.

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).

-          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.

-          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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