What impacts what I pay month to month for my home?

Illustration with individuals making schedule

For most people, your mortgage and home expenses are the largest part of your budget. Depending on how much wiggle room you gave yourself, any changes in those expense can either drastically impact you or not. Some people do not realize that not all the expenses towards your home are fixed and many can change from year to year which can mess up any budget.

For many, the largest home expense is your mortgage payment. This is the amount you pay towards principal and interest on the loan you borrowed to buy your home. Typically, this amount stays the same if you choose a fixed-rate mortgage. However, if you picked an adjustable-rate mortgage, the monthly payment could change at specified intervals with the market interest rate changes. The minimum length of time between any rate changes is called an adjustment period. Depending on which mortgage option you picked determines how flexible your monthly budget might need to be. People with more rigid budgets may lean towards a fixed-rate, while those with more flexibility may lean towards adjustable-rate in hopes the rates will be more favorable over time than at present.

For example, for a fixed rate loan the mortgage payment on a $300,000 home at 3% would be around $1,260 for the length of the mortgage*. If you had picked an adjustable rate on a mortgage of $300,000 that was 3% at signing and then jumped to 5% after the adjustment period, the monthly payment could change from $1,260 to $1,610*. This means you might need $400 extra in your monthly budget just in case*. However, this can also work in the other direction where you might be saving an extra $400 a month if interest rates were at 5% during the signing and dropped to 3% after the adjustment period*.

Mortgage payments are not the only home expense that could experience some turbulence over time. Property taxes can also fluctuate from year to year based on many factors. The best way to explain how taxes can change is to explain how they are calculated in the first place, so let us break it down.

According to the Mass.gov website**, “property tax is an assessment on the ownership of real and personal property”. Local assessors typically do assessments once a year for accuracy, which are the “full and fair cash value of the property.”

You may be wondering, why can the assessed value of my home differ from the appraised value of my home? Sometimes the assessed value can be the same as the appraised value, but other times it can differ because of the assessment rate used by your local assessor’s office.

How is the property tax determined from the assessed value of my home? The mass.gov website states**, “generally, property tax bills are based on the assessed value of the individual property and a property tax rate determined by the levy needed in the community”. What is a levy? “The levy is the overall amount of revenue a city or town raises through the property tax.”

That was a lot of legal terms, in more basic terms your property tax is determined by the following process. The town determines what the budget is needed to run the town, the levy. They then divide that amount by the total assessed value of all the homes in the town to get the property tax rate. They then multiply this rate times the assessed value of your home to determine your annual property tax amount. Tax assessors consider many factors when determining the assessed value of your home outside of just the property and structures, they also consider the property’s primary use, location, lot size, structure size, and more.

So if the town levy is what determines my taxes how much might they increase year over year? In Massachusetts, proposition 2 ½ limits how much the levy can change from year to year without a town vote, you can learn more about this on the mass.gov website. That is why it is good to stay up to date and involved with what is going on in your local government.

Homeowner’s insurance is the final expense that most home buyers must consider. The average cost of home insurance in Massachusetts is around $1,307, according to an article by bankrate.com***. However, home insurance can vary greatly based on the type of home, location, flood area, and many other factors, so it is best to shop around for the best option for you. Insurance costs can change from year to year depending on the market and if any claims were submitted, but homeowners can try to mitigate it by finding a lower cost option or provider if needed. Homeowners insurance is not required in the state of Massachusetts, but lenders may require it when filing for a mortgage.

The last variable expense is only for those who own a property within a homeowner’s association, and it is the Homeowners Association (HOA) Fee. Properties that might have such a fee are typically apartments, condos, or 55+ communities. These fees are used to provide services for those that live in the association group. These services may include but are not limited to:

  • Maintaining Common areas (lobbies, patios, landscaping, pools, etc.)
  • Snow Plowing
  • Utilities such as:
    • Water
    • Sewer
  • Garbage Disposal
  • Amenities and Services access

The fee amounts can range greatly and can be anywhere from $100-$400+. Paperwork on the fee structure, if anything is outstanding, association financials, minutes, notices, and services are typically provided at the closing of the home from the seller to the buyer. Also, the average monthly cost is normally stated on real estate advertisements of the home.

There are many factors in your home payments that may change over time. Therefore it is always good to build a budget with at least some wiggle room to accommodate for those changes when they happen.


*These numbers are used for illustrative purposes only, and in no way represent what a buyer will pay during closing. Contact a financial advisor for more information.

**For more information on the research about property tax information please go to https://www.mass.gov/guides/massachusetts-municipal-property-taxes

***Referenced from https://www.bankrate.com/insurance/homeowners-insurance/in-massachusetts/