This Housing Cost Is More Than My Mortgage

Like most people, I have a monthly mortgage to pay for my home. But, my mortgage isn't actually the biggest cost of owning my own place. There's something even more expensive that I am responsible for covering out of my checking account -- and it's an expense I'll never be able to get rid of, unlike my mortgage payment.

This homeownership expense is a bigger burden than my mortgage

Real estate taxes are the expense that costs me more each month than my mortgage loan payments. Unfortunately, in the area where I live, real estate taxes are pretty high. We actually have to pay two separate tax bills. We have to pay our property taxes to the county where we live, and we also have to pay our school taxes on top of that.

Together, the school taxes and the real estate taxes that we owe on our home collectively add up to thousands of dollars. And, we pay this separately from our monthly mortgage payment, which covers only principal and interest. While many people pay property taxes and insurance as a part of their payment to their mortgage lender (with the money going into an escrow account), my husband and I opted out of that. Instead, we just write a check for our taxes and insurance when they come due.

Because we separately write our property tax check, it's easy to compare that to how much our mortgage payment is just for our loan. And since we took out a relatively small mortgage and made a large down payment on our house, our property tax bill ends up being bigger than what we spend on our home loan.

Our property taxes are also going to be with us for as long as we own the home. Even after our mortgage has been paid off, we are still going to owe school taxes and county taxes -- and likely a lot more than we do now, as our tax bills have gone up every year since we moved in over a decade ago.

Don't forget to take property taxes into account when buying a home of your own

The reality is, property taxes are a fact of life nationwide -- although they cost more in some locations than they do in others. And, anyone who is buying a home needs to think about the impact of these property taxes on their home affordability.

Your mortgage lender may require you to include them in your mortgage payment, but even if that's not the case, you should figure out how much you must save each month to meet your annual tax obligation. Make sure this amount of money is added together with your loan payment when you determine if your house is going to be affordable or not.

Ideally, your total monthly home expenses including those property taxes shouldn't exceed 25% of your income. And, remember, you're going to have to pay these taxes for the rest of your time in the home, which could be harder to pay later in life after you retire. So take the time to think about whether your property tax bill is going to be affordable over the long term. If not, you may want to choose a house in an area with lower taxes so they won't become a huge financial burden down the road.