Final answer:
Nancy's recurring costs include mortgage payments, utilities, and insurance payments, while her non-recurring costs are closing costs, prepaid interest, and the origination fee. Recognizing the difference between these expense types is vital for effective budgeting and preparing for financial obligations associated with home ownership.
Step-by-step explanation:
When buying a house, expenses are often categorized into recurring or non-recurring costs. Here's how Nancy's list of expenses would be separated:
- Recurring costs: mortgage payments, utilities, and insurance payments.
- Non-recurring costs: closing costs, prepaid interest, and origination fee.
Recurring costs are ongoing expenses such as the monthly mortgage payments to repay the loan for the house purchase, the utilities which include power and water bills, and insurance payments that cover the property. Alternatively, non-recurring costs include one-time payments incurred during the purchase of the home like closing costs which are typically fees paid at the closing of a real estate transaction, prepaid interest which is the interest paid in advance for the first period of the loan, and the origination fee which is a charge by the lender for processing a new loan application.
Understanding the distinction between these types of expenses is crucial for Nancy to create a comprehensive budget and ensure that she has enough money to cover all of her costs related to home ownership. Moreover, setting aside a portion for discretionary income is important for future savings or unplanned expenses.