Home Ownership Costs: Condos vs. Houses

Are you having trouble deciphering the financial implications of buying a house instead of a condo — or vice versa? Given the stress and time it takes to fully understand the differences between major upfront obligations, such as transfer taxes and down payments, it’s often easy to overlook the long-term impacts of a disparity in recurrent home ownership costs.

Nonetheless, omitting this initial step from your home research process can create real problems down the road, cutting your predicted savings rate and increasing the chances of you defaulting on your future mortgage.

To make sure this doesn’t happen, we’ve put together a brief primer on the four key ongoing home ownership costs you need to be aware of when choosing between a condo or house.

Maintenance Costs

Due to their smaller size, the upkeep costs for a condo are, on average, slightly lower than the comparative costs of maintaining and repairing a house. In fact, when it comes to houses, experts recommend that homeowners annually budget between 1% and 2% of their home’s value to put towards yearly maintenance costs.

Nevertheless, prospective condo owners will still need to consider the cost of the condo association fee, a monthly fee covering the administration and maintenance of condo building common areas and facilities. Depending on where your condo is located, the monthly cost of the condo association fee can range from $200 at the low end to over $1,000 at the high end!

Property Taxes

Even though it might not seem like a huge expense initially, property taxes can add up fast, especially if you plan on buying your home in a jurisdiction with a higher than average tax rate.

While baseline property tax rates are determined by your local district tax authority, further adjustments to the baseline are dependent on your property’s classification and market assessment characteristics.

In many instances, adjustments to your property’s tax rate are contingent on one of two key valuation factors: either square footage or the number of rooms. Because condos are almost always smaller than single-family homes, property taxes on condos are typically lower than on houses.

Mortgage Interest Rate

Servicing your mortgage will be the most significant ongoing cost of owning a home. Aside from increasing your down payment, the best way to reduce your mortgage repayments in advance is to secure a relatively low mortgage interest rate.

Unfortunately for condo owners, mortgages for houses are generally offered at a lower interest rate than mortgages for condos. The difference in mortgage interest rates is mostly due to the fact that lenders regard condo complexes, particularly old high-rise condo buildings, as a higher risk property type. While variations in mortgage interest rates will vary between lenders, the pricing adjustment for condo mortgages tends to be between 0.13% and 0.25% up from the baseline interest rate.

Homeowners Insurance

In most cases, the cost of maintaining homeowners’ insurance coverage for a condo is significantly cheaper than the cost of maintaining an equivalent homeowner’s insurance package for a house.

There are two main reasons for this disparity. The first reason is that homeowners’ insurance policies for condos are usually offered at a discount rate anyway — this is because the building’s dwellings and HVAC systems are already covered under the condo complex’s master insurance policy.

The second reason is that houses, on average, have higher square footage and tend to be more vulnerable to weather exposure. This trend means that houses have an increased likelihood of experiencing a claim event, such as structural degradation or storm damage, leading in turn to more costly homeowners’ insurance premiums.

Don’t Lose Sight of What’s Best for You!

Remember, just because the total cost of home ownership for condos tends to be lower than for houses, it doesn’t mean that buying and living in a condo is always the best decision for you. In addition to the average cost of home ownership, you should also consider the personal and financial impacts of comparative differences in down payments, spatial limitations, location preferences, and lifestyle suitability.

If you are having trouble understanding or calculating how home ownership costs vary between different property types, do not hesitate to bring your concerns to a certified financial advisor or trusted local realtor.