Housing and Transportation: Evaluating Major Living Costs

Overview

Housing and transportation are usually the two largest ongoing expenses in a household. Understanding their mechanical structure — monthly costs, interest, fees, taxes, maintenance, and depreciation — is essential for building a realistic financial plan.

This chapter covers:

  • How total housing cost is built for renting vs owning
  • How mortgage interest, principal, taxes, and insurance are calculated
  • How interest rate and loan term affect monthly payment and total cost
  • How to estimate maintenance and utilities
  • The full cost of car ownership (not just the payment)
  • How loan terms and rates affect vehicle financing
  • Basic comparisons of transportation options using numbers

The focus is strictly on how the costs work, not what choices anyone “should” make.

1. Housing: Renting vs Owning (Cost Components)

1.1 Renting: What You Actually Pay For

The typical monthly cost of renting includes:

  • Base rent
  • Utilities (sometimes included, sometimes separate)
  • Renter’s insurance
  • Parking (if applicable)
  • Fees (pet fees, amenity fees in some complexes)

Example rent breakdown:

  • Base rent: $1,400
  • Electricity: $80
  • Gas: $30
  • Water/sewer/trash (if billed separately): $60
  • Internet: $60
  • Renter’s insurance: $15

Total monthly housing cost (renting) =
$1,400 + 80 + 30 + 60 + 60 + 15 = $1,645

No property tax, no structural maintenance — these are the landlord’s responsibility and are built into the rent.

1.2 Owning: PITI + Extras

Owning a home adds multiple cost components:

  • Principal (loan repayment)
  • Interest (cost of borrowing)
  • Taxes (property tax)
  • Insurance (homeowners insurance)

Often abbreviated as PITI. On top of this:

  • Utilities (electric, gas, water, trash, internet)
  • Maintenance and repairs
  • HOA dues (if applicable)

Total monthly housing cost (owning) = PITI + utilities + maintenance + HOA.

2. Mortgages: Principal, Interest, and Term

2.1 Fixed-Rate Mortgage Basics

Most common: 30-year or 15-year fixed-rate mortgages.

Key variables:

  • Loan amount LLL
  • Annual interest rate rannualr_{\text{annual}}rannual​
  • Monthly interest rate r=rannual/12r = r_{\text{annual}} / 12r=rannual​/12
  • Number of payments nnn (e.g., 360 for 30 years, 180 for 15 years)

Monthly payment formula:
P=r×L1−(1+r)−nP = \frac{r \times L}{1 – (1 + r)^{-n}}

This payment is fixed. The mix of interest vs principal changes over time.

2.2 Example: 30-Year Mortgage

House price: $350,000
Down payment: $50,000
Loan amount LLL = $300,000
Interest rate: 6% (0.06)
Term: 30 years → 360 months

Monthly rate r=0.06/12=0.005

Payment ≈ $1,799

This ~$1,799 is the principal + interest part only (PI).

Add taxes and insurance:

  • Property tax: say 1.2% of value annually
    • 1.2% of $350,000 = $4,200/year → $350/month
  • Home insurance: $1,200/year → $100/month

Estimated PITI:

  • PI: $1,799
  • T: $350
  • I: $100

Total PITI ≈ $2,249/month

Now add utilities and maintenance.

3. Housing Extras: Taxes, Insurance, Utilities, Maintenance, HOA

3.1 Property Taxes

Property tax = assessed value × tax rate.

Example:

  • Assessed value: $350,000
  • Rate: 1.2%

Annual tax = $4,200 → $350/month (if escrowed and added to payment)

Taxes can change over time as:

  • Rates change
  • Assessed value changes

3.2 Insurance

Homeowners insurance covers:

  • Structure
  • Personal property
  • Liability
  • Loss of use

Costs vary based on:

  • Location
  • Coverage level
  • Deductible

Typical range: a few hundred to a couple thousand per year.

3.3 Utilities and Maintenance

Typical monthly utilities:

  • Electric: $70–$200+
  • Gas: $30–$100+
  • Water/sewer/trash: $50–$120+
  • Internet: $50–$100+

General maintenance planning assumption:

  • 1% of home value per year

Example:

  • Home value: $350,000
  • 1% = $3,500/year ≈ $292/month

3.4 HOA Dues

  • Monthly dues: $50–$400+
  • May include exterior maintenance, landscaping, amenities

HOA dues are not optional.

4. Rent vs Own: Mechanical Comparison

Renting:

  • Monthly rent total: $1,700

Owning:

  • PITI: $2,250
  • Maintenance reserve: $250
  • Utilities: +$100

Total owning ≈ $2,600

Monthly difference: ~$900

Over 5 years: $54,000

Approximate principal paid over 5 years: ~$20,000–$25,000

The goal is understanding structure, not declaring a winner.

5. Transportation Costs: Full Cost of a Car

  • Purchase or lease
  • Loan interest
  • Depreciation
  • Insurance
  • Fuel
  • Maintenance
  • Registration and taxes

5.1 Example: Basic Car Ownership Cost

  • Loan payment: $356
  • Insurance: $100
  • Fuel: $150
  • Maintenance: $75
  • Registration: $17

Total ≈ $698/month

Depreciation ≈ ~$100/month (economic cost).

6. Car Loan Structure

Longer term → lower payment, more interest.
Shorter term → higher payment, less interest.

7. Transportation Alternatives

  • Ownership
  • Leasing
  • Public transport
  • Rideshare

Example:

Ownership: $700/month
Public transit: $120/month

Difference: $580/month → $6,960/year

8. Summary of Housing and Transportation Mechanics

  • Housing costs for owners = PITI + extras
  • Mortgages front-load interest
  • Rent embeds landlord costs
  • Car ownership includes many non-payment costs
  • Alternatives compare cleanly on monthly cost