high interest rate environment<\/a><\/span>.<\/p>\nDealing with taxes & insurance<\/h3>\n
Our property taxes and insurance costs also increased by about $365 per month ($4,375 per year) with our new house. We took some steps to better manage these increases as well. First, we shopped our insurance aggressively with an independent insurance agent who was not affiliated with any big-box type insurance firm.<\/p>\n
Second, we opted out of escrow with our lender. This meant we didn’t have to pay our property tax bill monthly. Instead, we will pay our property tax bill ourselves when required by the state of Illinois (one half payment in June, one half payment in August).<\/p>\n
Opting out of escrow saves us $1,250 per month from September to May each year (until payments are due in June). This is $11,250 in cash that I’m not having to spend for 9 months out of the year. I still have to save that money and be ready to spend it when the first property tax bill is due in June. But, with that $11,250 in my pocket instead of an escrow account, I can invest the money and earn interest on the amount. In my case, at a 5% risk-free rate, I will earn about $420 in interest from this money.<\/p>\n
Here’s a secret too: investing your monthly property tax payment is exactly what your bank is doing with your escrow account. Why should the bank be the one who earns the interest? The property tax payments aren’t due until they’re due, so you may as well make money on that money until then. Of course, this strategy requires financial discipline. You cannot confuse the extra cash you have from not paying property taxes each month as discretionary money to spend.<\/p>\n
Lastly, on the topic of opting out of escrow, this strategy can be ideal for people who have lumpy or variable income throughout the year (such as bonus, commission, stock grants, etc).<\/p>\n
Rates are what they are<\/h3>\n
In 2022 we were thinking about moving but rates had just gone from 3% to over 5%, so we were tepid. In addition, our local housing market was still rife with bidding wars, so it just didn’t feel like the right time to make a move. Yes, we’d be getting a good price on our house versus what we paid, but we were “trading up” — so the price we were paying was more important than the price we were selling for.<\/p>\n
Fast forward a year later and rates were in the 7-8% range, but we noticed our local market had slowed down dramatically. The bidding wars were gone and prices had moderated. We knew our new monthly payment was going to be much higher no matter what, but we felt we were also getting a nicer house at a better deal. Most of the comparable sales for the house we were buying were in the $650,000-$700,000 range, but they had sold in 2021-2022 when the market was much hotter.<\/p>\n
When we bought our house we ran all of our numbers based on monthly costs associated with our 8% mortgage. We did not buy with the assumption that we can refinance (though it will be nice if we can!). It is definitely a bit cringe-worthy knowing how much our costs went up. But our household happiness has gone up even more.<\/p>\n
Our kids LOVE our new house and it really suits our needs in such a more efficient way than our old house did. So I can quantify that our household costs went up by 93% versus the old house, but I can also say our living situation feels a million times better. You can’t put a price on that.[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=”full_width_background” full_screen_row_position=”middle” equal_height=”yes” content_placement=”middle” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”8%” bottom_padding=”8%” class=”postemail” overlay_strength=”0.3″ shape_divider_position=”bottom” shape_type=””][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”0.1″ background_hover_color_opacity=”1″ column_link_target=”_self” column_shadow=”none” column_border_radius=”none” width=”1\/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” column_border_width=”none” column_border_style=”solid”][vc_row_inner column_margin=”default” text_align=”left”][vc_column_inner column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” width=”1\/2″ tablet_width_inherit=”default” column_border_width=”none” column_border_style=”solid”]
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