Paying off a mortgage represents a significant accomplishment for many Americans, especially for retirees living on a fixed income, because it can free up large amounts of cash.
Millions of Americans who own their homes outright, however, are still struggling to afford them.
An analysis of recently released Census Bureau data shows that roughly 5.5 million mortgage-free homeowners spend at least 30 percent of their household income on housing costs. Of those, 2.7 million spend at least half.
Those spending levels can make a home unaffordable, even without a mortgage payment. And many of these expenses keep rising.
The mortgage is gone. The bills aren’t.
“A paid-off mortgage doesn’t eliminate the ongoing cost of homeownership,” said Julia Taliesin, an economic analyst at Insurify, an online insurance comparison website. “Taxes, insurance, utilities and upkeep costs persist even after the mortgage is paid off.”
Updated research provided by Insurify shows that U.S. homeowners spend an average of $21,486 each year on expenses other than their mortgage, including $7,374 for maintenance, $5,649 for utilities, $4,427 for property taxes and $3,012 for homeowners insurance, plus flood insurance.
These costs, of course, vary significantly depending on the state. In 22 states, these costs exceed $20,000 annually. In five states, including California and Hawaii, they top $30,000 — partly because of higher property values and the costs associated with extreme weather events, such as fires and floods.
Those expenses are not what most homeowners have in mind when they think of a mortgage-free life. While the price of their homes may have appreciated substantially, that equity doesn’t pay the electric bill or replace a leaky roof.
Finding savings without moving
Not all housing expenses are set in stone. Take property taxes, for example.
Leo Chen, an assistant professor of finance at the University of South Florida, said it is worth reviewing your property’s assessed value and appealing it if it’s inaccurate.
Chen added that in his experience, property tax assessments may warrant reductions in roughly 5 percent to 25 percent of cases, potentially saving homeowners $500 to $2,500 annually. Some third-party services handle appeals without up-front fees and instead collect a percentage of any savings, often around 30 percent.
Homeowners should also check for homestead, senior, veteran and disability exemptions. Chen noted that these benefits don’t always apply automatically and that homeowners must apply for them. However, certain households can save more than $1,000 if the government grants the benefits.
Insurance offers another opportunity.
Taliesin recommended calling your insurer and asking about every available discount. Discounts for paying in full or making automatic payments are common. Some insurers may reduce your rate if you install a security system, make home improvements or demonstrate you belong to certain organizations.
Discounts vary by company, but Taliesin said combining them can sometimes reduce premiums by 15 percent or more. If your insurer doesn’t offer much, shop around.
When to consider a move
Sometimes, cutting expenses isn’t enough.
Chen said that if your housing costs exceed 30 percent of your income, it can be a warning sign. Other red flags include drawing down savings to cover bills or postponing necessary repairs.
For some households, downsizing could make more sense than borrowing against their home equity. A smaller property might reduce taxes, as well as insurance and maintenance costs, while freeing up cash.
But selling comes with transaction costs, and buying another home could mean taking on a mortgage at today’s higher rates.
The good news is that with a paid-off mortgage, you may have enough equity to give you some flexibility, whether you want to move or stay put.
The post Why some can’t afford their house — even after they pay off their mortgage appeared first on Washington Post.
