Current monthly mortgage payments
Mortgage payments primarily consist of principal and interest. For a $700,000 loan with a 20% down payment ($140,000), the remaining $560,000 is financed. Using current interest rates as of November 2024:
15-Year loan
- Interest rate: 5.36%
- Monthly payment: Approximately $4,534.17
This option allows borrowers to pay off the loan faster and save on interest but requires higher monthly payments.
30-Year loan
- Interest rate: 5.95%
- Monthly payment: Approximately $3,335.91
This provides lower monthly payments but results in more interest paid over the loan’s life.
These figures exclude property taxes, homeowners insurance, and potential private mortgage insurance (PMI) if the down payment is below 20%.
Projected payments with rate cuts
Mortgage rates are influenced by Federal Reserve policies, which may reduce rates further as inflation cools. Here’s what a $700,000 monthly mortgage payment would be, then, at today’s rates minus those additions (and assuming a 20% downpayment of $140,000):
- 15-year mortgage at 5.86%: $4,683.35 per month
- 30-year mortgage at 6.44%: $3,517.51 per month
After September rate cuts:
- 15-year mortgage at 5.61%: $4,608.42 per month ($74.93 cheaper)
- 30-year mortgage at 6.19%: $3,426.19 per month ($91.32 cheaper)
After November rate cuts:
- 15-year mortgage at 5.36%: $4,534.17 per month ($149.18 cheaper)
- 30-year mortgage at 5.94%: $3,335.91 per month ($181.60 cheaper)
Additional considerations
- Taxes and insurance
These costs are location-dependent. Homeowners may pay an average of 1.1% of the home value annually in property taxes and around $1,200 yearly for insurance. - Private Mortgage Insurance (PMI)
Borrowers with less than 20% down often pay PMI, adding 0.5%-1% of the loan amount annually. - Market competition
Lower rates may drive more buyers into the market, potentially increasing home prices and offsetting rate-cut benefits.
Is waiting worth it?
While lower rates are appealing, buyers must consider:
- Price volatility: As rates drop, home prices may rise due to increased demand.
- Personal finances: Locking in today’s rates ensures predictability, while waiting introduces uncertainty.
Choosing between loan terms
The choice between a 15-year and 30-year mortgage is important:
- 15-year term: Higher monthly payments but lower total interest. Ideal for those seeking to pay off the loan faster.
- 30-year term: Lower monthly payments, offering more flexibility but costing more in total interest.
For Instance; for a $700,000 loan at 7%, the 30-year term incurs over $1.1 million in interest, while the 15-year term totals approximately $452,180 in interest, a savings of more than $650,000.
What does It take to afford a $700,000 mortgage?
Lenders recommend that housing expenses not exceed 28% of gross monthly income. For a $700,000 mortgage:
- At $4,657/month (30-year term at 7%), a household should earn approximately $200,000 annually.
- At $6,292/month (15-year term at 6.5%), the income requirement increases to around $270,000 annually.
