Signing a Fixed-Rate Mortgage? Here’s Why You Still Need to Budget for Higher Housing Costs

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The cost of homeownership can rise over time. Read on to see what factors can affect it. 

The main benefit of signing a fixed-rate mortgage is getting to lock in your monthly payments for the life of home loan. If you sign a 30-year, fixed-rate mortgage that leaves you with monthly payments of $1,100 each, you’re guaranteed to keep paying $1,100 a month until your home is paid off — assuming, of course, that you don’t opt to refinance the loan, in which case your monthly payments might drop.

But signing a fixed-rate mortgage does not guarantee that your housing costs won’t rise over time. Here are a few reasons to assume they will — and budget accordingly.

1. Your property tax bill could climb

Property taxes are an unavoidable expense when you own a home. And yours have the potential to climb over time as your home’s value increases. Granted, that’s not guaranteed to happen — but it’s likely.

You should also know that any time you make major improvements to your home, you run the risk of seeing your property tax bill rise. That’s because your renovations are likely to be reflected in your home’s future assessments.

2. Your homeowners insurance premiums could rise

The amount of money you pay for homeowners insurance could increase through the years, even if you don’t end up filing many claims against your policy. If the cost to replace your home in the event of damage rises, you may need to spend more on insurance so that you have adequate replacement cost coverage.

You should also know that if you do file a series of claims against your homeowners insurance policy, that alone could drive the cost of your premiums up. But in many cases, filing those claims may be unavoidable.

3. Your maintenance and repair costs could increase

You’ll generally hear that it’s a good idea to budget 1% to 4% of your home’s value for annual maintenance. But the older your home gets, the more you might need to veer toward the higher end of that range.

Similarly, as your home ages, repairs may become more common. You might have to spend more money to fix a failing air conditioning system, replace worn fixtures, and address issues like rotting wood on your fence or deck.

Pad your budget accordingly, year after year

While signing a fixed-rate mortgage will leave you with the same monthly payment over time, that doesn’t mean you won’t end up spending more on housing from one year to the next. That’s why it’s a good idea to allocate extra money for housing at the start of each year, when you (ideally) sit down to map out your budget.

If, right now, you have $1,800 a month allocated to housing, $1,100 of which is meant to cover your mortgage payment, next year, consider raising that number to $1,900 (and earmark some of the raise you may be getting at work for that purpose). The year after that, increase your monthly housing costs to $2,000, and so forth. Doing so is a good way to help ensure that you’re able to keep a roof over your head without undue financial stress.

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