Home ownership is an exciting step of adulthood, and marks a major milestone in #adulting. That is, until you confront the unexpected costs that can take a shockingly large chunk out of your savings account.
Here are five most common costs of home ownership that you may not expect, and the steps you can take to avoid them.
1. Busting the renovation budget
Whether you’re buying a resale flat from the open market, or a brand new apartment, you’ll want to make some customisations to your new home. And that means signing on a renovation package that costs tens of thousands of dollars.
You’d think that the large upfront sum would be enough to cover everything you could think of, but busting the renovation budget unfortunately happens more often than not.
There are many reasons why this could happen, ranging from careless mistakes or miscommunications on the part of your contractor, to finding out you need extra hacking due to unexpected modifications. For older flats, the need for electrical rewiring to prevent blowouts, and re-waterproofing to prevent bathroom leakages could significantly bump up your final bill.
How to avoid this: Set your renovation budget according to the work discussed with your contractor or interior designer, then put aside an extra 20 per cent on top of that to cover any extra expenses.
Another tip is to ask your bank for a separate furniture loan package (i.e., a secondary loan, to be used only for furniture purchases) which gives you more flexibility in catering to the needs of your new home.
2. High utilities bills
Having your own home is rewarding in many ways. It’s where you can literally kick off your shoes, have a long hot shower, then sit back and enjoy Netflix on your 40’ HDTV while cooling off under the aircon.
But unbridled enjoyment of your abode could pump up your utilities bills to unexpectedly high levels, which will likely dampen your enthusiasm for binge-watching The Umbrella Academy that weekend.
How to avoid this: When it comes to high utilities costs, the number one culprit is the air-conditioning. Make sure you invest in a high energy efficiency-rated model to enjoy a cool and comfortable home without getting all hot under the collar when your utilities bills come around. You might also want to set a timer on your air-conditioning — get it to turn off at 4am so it’ll still be cool when you get up at 7am.
Another culprit is the clothes dryer. If you must have one, make sure to limit its use to rainy days only. Also, be sure not to run it longer than necessary, just until your clothes are sufficiently dry. Otherwise, all you’re doing is wasting energy and money, while subjecting your clothing to greater wear and tear.
3. Appliance replacements
One of the biggest nightmares in tropical Singapore is to wake up in the middle of the night soaked in sweat, realising the aircon has broken down. Say what you will about #firstworldproblems but after two stuffy, sleep-deprived nights, you’ll be ready to sell your firstborn in exchange for a working aircon.
And if you don’t have the money on hand to replace the aircon (or fridge, washing machine, stove, shower heater etc) you may very well have to do just that.
How to avoid this: As far as possible, buy essential appliances only from reputable brands and remember to register your product to be applicable for its warranty. More than a good quality product, you’ll want excellent after-sales service with fast repairs and turnaround times.
Yes, this usually means splurging on higher-end models. But if your budget can’t quite cover expensive brands, consider buying extended warranties on cheaper models. This way, you’ll be covered in case your budget appliance breaks down.
Another way to avoid unplanned expensive replacements is to call for regular servicing by professionals. This can keep your appliances working smoothly until you have the money to replace them.
4. Mortgage Fluctuations
This next item can be particularly dangerous because of the way it creeps up on you.
If you apply for a home mortgage from a bank, you may be offered a package with attractively low interest rates in the first three years, with the “real” rates kicking in only from the fourth year onwards.
This may sound attractive to homeowners with tight finances, but it’s a simply a marketing tactic and may not actually be good for your bank account.
How to avoid this: See, home mortgages are typically 20 to 25 years, so it’s really the long-term interest rate you should be focused on. You should always make sure your finances can accommodate the higher mortgage payments that will be charged after the promo period has passed.
If you’re buying a HDB flat, you can bypass all these shenanigans and opt for a HDB concessionary home loan, which at 2.6% interest, offers the lowest mortgage rates in Singapore. (For context: Except for a freak drop from 2006 to 2018, bank mortgage rates typically average around 3%.)
5. Home accidents
Despite our best efforts, accidents do happen. And if they happen at home, homeowners can find themselves saddled with an unexpected debt that could end up in the thousands.
For example, if a fire breaks out in your apartment, your neighbour’s units — along with common areas such as corridors — may be affected, suffering heat, smoke or soot damage, which you will have to pay for. If your relatives, tenants or friends should suffer an injury while in your home, you may be liable for damages or medical bills.
How to avoid this: The straightforward answer is insurance, which private homeowners will know to get themselves. HDB flat owners are already automatically enrolled into a fire insurance plan, which leads to many people assuming their homes are insured by default. That’s not quite accurate, as the basic HDB plan only covers the structure of your home in case of fire.
What is not covered includes personal belongings, contents of your home (such as furniture and appliances) and also personal liability claims. Hence, it’s best to sign up for a comprehensive home protection insurance plan that will cover you for the items above.