Thanks to the high inflation rates, which have also affected the housing prices in the U.S., the average price of a single-family home is a whopping $505,750 as of April 2024. Understandably, not everyone has this amount of money to pay at once. Therefore, people take out mortgages to help them pay this huge sum over several years. So, how much does a mortgage on a $500,000 house cost?
Mortgaging
Half a million dollars can get you a single-family home in the U.S. However, those who do not have that sum and have to rely on a mortgage payment have a different way of paying the fee over a particular number of years. With mortgage payments, one can decide to pay in installments over a long period.
Depending on the plan, one can pay over a 5-year- or even 30-year period.
The Total Cost of a Mortgage on a $500,000 House
The total cost of a mortgage on a $500,000 house varies because different people have different payment plans that span a long period of time. While some can afford to pay it in just a few years, some extend their payments for a couple of decades.
However, it is essential to note that the longer the mortgage payment term, the higher the total interest that would be paid to the company.
A 15-year Plan
Using two popular mortgage loan terms, the 15- and 30-year fixed rate, a $500,000 mortgage will have two entirely different costs. Those who would prefer the 15-year plan, assuming a 6.16% interest rate and 10% down, would pay about $690,545.58 over the time span.
The interest paid would be $240,645.58, which is much lower than the fee for those who choose the 30-year payment plan.
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A 30-year Plan
For those who intend to pay their mortgage over 30 years, the interest rate is slightly higher at 6.16%, assuming 10% down. However, the total interest that would be paid over that period would be $612,601.49.
Over those thirty long years, the lifetime cost of the mortgage would amount to $1,062,601.49, which is much higher than the intended $500,000 house budget.
Monthly Payment Costs of a $500,000 Mortgage
The monthly principal and interest payment on a $500,000 mortgage may vary due to three major factors. First, the mortgage type is quite important. Then, the interest rate and the payment term would also be a factor. For those who have conventional mortgages, their sample rates usually start at 7%.
However, it is a bit lower for those with Federal Housing Administration (FHA) and V.A. mortgages (U.S. Department of Veterans Affairs), at 6.5% and 6%, respectively.
Types of Mortgages
Due to affordability and sourcing, three types of mortgages are typically available to people in the U.S. Conventional mortgages are typically the most common and readily available. They include offers from different types of lenders, including credit unions and banking institutions.
Therefore, most people use conventional mortgages as this option is the most commonly available. However, it requires a down payment of at least 20% and is not backed by any government agency.
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FHA AND VA Mortgages
The Federal Housing Administration offers FHA mortgages, insuring some citizens’ mortgages. The criteria for this type of mortgage are usually more relaxed, with lower down payments than loans from conventional lenders. The Department of Veterans Affairs insures V.A. mortgages, which are only available to people who qualify for a Certificate of Eligibility from the federal agency.
These VA mortgages are usually more affordable than conventional ones but aren’t open to all citizens.
Short-term Additional Costs to Consider
Those who want to get a mortgage on a $500,000 house also have to consider the fact that other costs will come up over time. There will be short-term costs or “closing costs,” which would cost about 3-4% of the total loan amount.
These costs include but are not limited to the down payment, home inspection and appraisal, agent commissions, underwriting fees, title insurance and search fees, discount points, and mortgage origination fees.
What Are the Long-term Costs?
The long-term costs usually span decades and are often obligatory. These include, but are not limited to, property tax, home maintenance expenses, upkeep, homeowners insurance, association dues for homeowners, mortgage insurance, and many more.
Escrow payments are usually included in long-term costs, but different lenders have different arrangements. For those who have an FHA or conventional mortgage and have made a down payment of less than 20%, private mortgage insurance (PMI) could be an additional long-term cost.
The Minimum Income for a $500,000 Mortgage
To make a $500,000 mortgage work, one should have a yearly income of about $103,500. However, this is for a 30-year fixed mortgage with an interest rate of 6.86% and a 10% down payment. The fees of the monthly principal plus the interest will be about $2,952.
Most lenders ensure that the borrower’s monthly housing costs do not exceed 28% of their gross income.
20% Down Payment on a $500,000 House
For those who would like to pay a 20% down payment for a $500,000 house, it would be $100,000. Then, one would be required to pay the rest of the money in installments over the agreed-upon period. However, this is a huge amount to pay at once, and many cannot afford it.
Therefore, many mortgages offer the option of a lower down payment, but this comes with some terms and conditions.
Can Someone Who Makes $200,000 Annually Afford a $500,000 Mortgage?
Most often, those who make $200,000 annually can afford a $500,000 house on a mortgage. This is because the amount exceeds the minimum amount of $103,500 required to sustain payments. However, people with many outstanding debts may face many problems even as they earn $200,000.
Therefore, it is important to talk to your lenders to determine if you can afford the mortgage plan without straining your finances.
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