This will be your monthly mortgage payment for a $500,000 home in March 2024

It is crucial to consider factors other than the sticker price when figuring out your home-buying budget. After all, when interest is taken into account, the amount you will pay on your home loan will be significantly higher unless you are purchasing the house outright.

Additionally, if you choose a fixed-rate mortgage, you can know in advance how much your monthly payment and the overall cost of the house will be. This can help you make sure the payment is within your means. Let’s explore how much you’d pay for a $500,000 home with different mortgage options.

What would my monthly mortgage payment be for a $500,000 home?

There is a simple formula for calculating your monthly mortgage payment, but it requires three variables: interest rate, loan term, and down payment. For these examples, we will use a 20% down payment, which equals $100,000 on a $500,000 home. This means you would borrow $400,000 with a mortgage while avoiding private mortgage insurance (PMI).

Example 1: A 30-year fixed-rate mortgage at 6.95%.

The New York Times reports that 75% of mortgages have 30-year maturities and that over 95% have fixed rates. The average interest rate for this kind of mortgage in the country as of December 29, 2023, is 6.95%. Depending on your region and credit score, your real rate can change. However, that is not guaranteed to be the rate you receive. Your mortgage provider will calculate your rate based on several factors, including your credit score and place of residence.

Borrowing $400,000 with a 30-year fixed-rate mortgage at 6.95% yields a monthly principal and interest payment of $2,647. This excludes homeowner’s insurance and property taxes, which vary by location. You would also pay $553,452 in interest, bringing the total to $953,452. This home’s total cost is $1,053,452, including the $100,000 down payment.

Example 2: A 15-year fixed-rate mortgage at 6.35%.

Although the monthly payment for a 15-year fixed-rate loan will be greater than for a 30-year mortgage, you may save money on interest. With a down payment of $100,000 and financing of $400,000, the monthly mortgage payment would be $3,451.

Do not forget to account for property taxes and homeowner’s insurance. In addition, you would have to repay $621,279 in loan installments and $221,279 in interest on this loan, and the 15-year amortized cost of the house would be $721,279, including the down payment.

Example 3: Adjustable-rate mortgage

An adjustable-rate mortgage (ARM) is another kind of mortgage. With an ARM, there is an initial fixed-rate period. Following the end of the fixed-rate period, your interest rate will be adjusted according to a predetermined schedule.

ARMs are typically described using two numbers: one representing the fixed-rate period and the other indicating how frequently the rate can be adjusted. For example, if you have a 7/1 ARM, the fixed-rate period is seven years. Once the fixed-rate period expires, the interest rate can be adjusted up or down once per year.

You can only choose your monthly payment amount for the fixed-rate duration of an ARM loan. If interest rates drop over time, this kind of loan might end up saving you money, but there is also a chance they might rise.

How much do I need to make to afford a $500,000 house?

In general, your mortgage payment should be no more than one-third of your monthly income. Finally, the amount you need to make is determined by your down payment, loan terms, taxes, and insurance.

• 30-year mortgage. To qualify for a loan with a 6.95% interest rate and a 20% down payment, your annual income must be at least $31,835 before taxes.
• 15-year mortgage. You would need to make at least $40,081.20 before taxes a year with a 6.95% interest rate and a 20% down payment on a $500,000 home.