Homes priced at $1 million or more are becoming increasingly common in the US, particularly in cities like San Francisco, New York, and Seattle. With high mortgage rates in 2024, the costs of financing such a home are crucial for prospective buyers.
The monthly payment for a $1,000,000 mortgage
A $1,000,000 mortgage costs depend on several factors, including the down payment, loan term, and interest rate. Here’s a breakdown of potential monthly payments based on current rates and typical loan structures:
Assuming a 20% down payment
For a $1 million home, a 20% down payment of $200,000 leaves you with an $800,000 loan. With a 30-year fixed-rate mortgage at the average rate of 6.0% (as of December 2024), your estimated monthly principal and interest payment would be $4,792. However, for a shorter duration of 15 years; with a 15-year fixed-rate mortgage at the average rate of 5.3%, your estimated monthly principal and interest payment would be $6,432. This does not include property taxes, homeowners’ insurance, or HOA fees, which can increase monthly costs depending on your location and property type.
Adjusting for loan terms and rates
- Higher interest rates: If rates climb to 8%, the monthly payment for a 30-year loan would increase to about $5,867.
Other costs beyond the principal and interest
When budgeting for a million-dollar home, consider additional costs:
- Property taxes: These average 1.1% of the home value annually, or about $11,000 per year ($916 monthly) on a $1 million home.
- Homeowners’ insurance: Costs vary by state but typically range from $1,500 to $3,500 annually.
- Maintenance and repairs: Experts recommend budgeting 1% of the home’s value annually, or about $10,000 annually.
Income needed to afford a $1,000,000 home
Lenders generally follow the 28/36 rule, which states your housing costs should not exceed 28% of your gross monthly income, and all debts should stay within 36%. To comfortably afford the $5,595 monthly payment (principal and interest alone), your household should earn at least $239,880 annually ($19,990 monthly) before taxes. Factoring in taxes, insurance, and other costs, an annual income of at least $270,000 is more realistic.
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Tips to reduce monthly payments
Increase your down payment
If you can afford a down payment of $300,000 (30%), the loan amount drops to $700,000. At 6%, this would reduce the monthly principal and interest payment to about $4,194.
Shop for better rates
Mortgage rates can vary notably among lenders. A small rate reduction from 6.0% to 5.85% could save hundreds of dollars monthly.
Opt for a longer-term
While 30 years is standard, some lenders offer 40-year mortgages, which lower monthly payments but increase the total interest paid over the loan’s life.
Make extra payments
Making one extra monthly payment annually or paying slightly more each month can reduce the loan term and total interest.
