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What Costs Should You Add Onto Your Mortgage - and What Costs You Should Not

Aug 31, 2008
It's a known fact that the first couple years of owning a house are the most expensive years. This is especially true of pre-owned houses, where you're almost guaranteed to need to make some immediate repairs and adjustments, or will find you have to make some down the line. Many people believe it makes good sense to add in some of these costs into their mortgages. While it can make sense to add in some of these costs, it does not make sense to add them all in. Let us take a look at this debate.

As a rule of thumb the costs you add into your mortgage should only be those costs that will ultimately improve the value of your home. What this mainly includes are renovations for upgrades to "fixed" areas of your home. Examples include, permanent electrical work, a replaced roof, built in cabinetry, flooring like hardwood or tile and plumbing.

It doesn't make sense to borrow funds to purchase items that are not permanent fixtures in your house. Area rugs, decorative pieces, artwork, accent furniture and window coverings, at the end of the day, may look snazzy but won't make you any better off with regards to your investment. So don't attempt to include them into your mortgage amount. Hold off, and you can gradually accumulate these items over the years.

Purchasing such items with the "long-term borrowing" costs of a mortgage means you'll be paying interest charges on those borrowed funds for the next 25 years- this is VERY expensive. And, the foolish thing is that these investments are not evolving and growing to improve your home equity. They are separate from your investment and won't do much more than make your home pretty and comfortable - which is of course desirable, but it makes more financial sense to such touch ups with non-mortgage monies.

Of course there are other more logical ways to cover the costs of furniture and furnishings. Credit cards, short term loans and lines of credit all make much more sense than tacking on these costs into your mortgage.
About the Author
Philadelphia Real Estate Guide: Find Center City real estate and homes for sale. Easy-to-use search and neighborhood info from Todd Levinson, Philly Buyer's Agent.
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