Average mortgage payments have become the norm for many homebuyers today. The numbers out there certainly seem to justify the move to the average mortgage payment amount. But what is average, and why should you be concerned with it? Mortgage rates are lower than ever before, and home prices have increased in recent years. In addition, to these two factors, there are other things that affect your mortgage payments, including your credit, your down payment, your income, and the interest rate.
City and coastal areas: The figures above examine national averages on mortgage payments. However, your monthly costs will vary depending on the details of your local real estate market. High-cost coastal and city properties are typically more costly to own. Comparting your monthly payment to an average mortgage payment may not give helpful information about your specific situation. This example illustrates the need for you to research the facts about your local real estate market.
First-time homebuyers: If you are a first-time homebuyer, your expectations are probably higher than average mortgage payments. If you’re hoping to rent your new property out, you probably won’t be able to make this payment, and would then have to either (a) scale back your expectations, or (b) find a better rental option. It’s possible to save money on your rental by shopping around. Look for properties that have been recently sold, as these properties usually appreciate in value faster than older properties. If you don’t mind moving in temporarily to a cheaper property while you shop for your next home, you could also save on your monthly payments by searching for an owner-financed house. However, keep in mind that owners-financed houses typically come with higher interest rates.
How do interest rates affect your mortgage? Interest rates are currently at record lows, which is good if you’re an investor waiting for the perfect time to buy real estate. Unfortunately, most people don’t live to see these low rates, and instead are stuck with average house prices during a period of rising interest rates. While you can always sell your house for more than you paid in fees, if you don’t know when you’ll be able to sell your house, it could cost you more in the long run. With rising house prices, there’s no room to cut back on your monthly payments any further.
How are interest rates affecting your mortgage? One thing to remember about interest rates is that they always move in an upward direction, and will likely continue to move upward for the foreseeable future. If you can plan your finances to accommodate these higher interest rates, it would be best to get an adjustable rate (ARM) mortgage, since these mortgages tend to offer lower interest rates.
Now that you know what interest rates are going to cost you over the next few years, it’s time to figure out the impact on your monthly mortgage payments. You should expect your payment amount to increase at least once again, to the tune of at least one percent. This one percent increase could add up to as much as $150 per year, depending upon the number of years you plan to stay in your home. So, if you’re planning on living in your home for the next 15 years, you might as well plan ahead and get an ARM loan.
What if you can no longer afford your current interest rate? If you get an adjustable rate mortgage, it’s possible that you’ll be able to refinance in the future when your interest rate is higher, thereby reducing your mortgage payments. Unfortunately, this isn’t something that most people will be able to accomplish, however, if you have good credit it might be an option for you down the road. Many ARM mortgages come with a longer fixed period of time, which allows you to lock in a lower interest rate and a lower monthly payment. Once you do so, you’ll be able to buy a larger home with less money down. This is also a great strategy if you know that you’re going to need to make large payments in the future.
The bottom line is that your monthly interest rate and your home loan principal both play a large role in the amount that you pay towards your monthly mortgage payments. With the economy the way it is, it’s important that you take a long look at all your options, including an interest rate swap to save money. Regardless, of whether you opt for an adjustable or a fixed rate mortgage, make sure that you take a look at the big picture and think about your long term goals before getting behind on paying for your home.