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Considering factors other than the sticker price is crucial when figuring out your home-buying budget. After all, when interest is taken into account, the monthly mortgage payment will be significantly higher unless you are purchasing the house outright.

Furthermore, if you choose a fixed-rate mortgage, you will know in advance how much your monthly payment and total home cost will be. This can help you determine whether the payment is within your limits. Let us see how much you would pay for a $1,000,000 property using various financing choices.

Estimating your monthly mortgage payment for a $1,000,000 home

There is a simple formula for calculating your monthly mortgage payment, but it requires three parameters: interest rate, loan term, and down payment. For these examples, we will assume a 20% down payment of $200,000 on a $1,000,000 home. This means you would borrow $800,000 with a mortgage and avoid private mortgage insurance (PMI).

Monthly mortgage payment scenarios

Fixed-rate mortgages offer consistent monthly payments, whereas adjustable-rate mortgages (ARMs) provide flexibility but may result in higher payments. ARMs are riskier because of potential future increases, so understanding risk tolerance and seeking professional advice is critical when choosing the right mortgage.

30-year and 15-year fixed-rate mortgages

According to the New York Times, 75% of mortgages have 30-year maturities, with fixed rates making up more than 95%. The national average interest rate for this type of mortgage as of December 29, 2023, is 6.95%. On the other hand, 15-year fixed-rate mortgages have a slightly lower interest rate of 6.35%. 

Depending on your region and credit score, your real rate can change. Remember that the rate you receive is not guaranteed, as your mortgage provider will calculate your rate based on several factors, including your credit score and place of residence.

Borrowing $800,000 with different mortgage rates will vary the monthly mortgage payment, how much you would have to repay in installments, and interest. Additionally, it will also impact the amortized cost of the house, including the down payment. Here is a breakdown of both fixed-rate mortgage scenarios. 

Variables 30-Year Fixed Rate (6.95%) 15-Year Fixed Rate (6.35%)
Monthly mortgage payment $4,971.69 $5,177.29
Total loan repayment (Installments) $1,789,444.40 $931,913.10
Total interest paid $989,444.40 $331,913.10
Amortized cost of house (Down Payment + Repayment) $1,989,444.40 $1,131,913.10

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. However, bear in mind that you should also account for property taxes and homeowner’s insurance. 

Adjustable-rate mortgage

An adjustable-rate mortgage (ARM) normally includes an initial fixed-rate period. Following the end of the fixed-rate period, your interest rate will be adjusted on a predetermined basis. ARMs are typically described with two numbers: one for the fixed-rate period and another for how frequently the rate can be adjusted. For example, a 7/1 ARM has a fixed rate period of seven years.

Once the fixed-rate period expires, the interest rate can be raised or lowered once per year. You can only choose your monthly mortgage payment amount for an ARM loan’s fixed-rate period. If interest rates fall over time, this type of loan may save you money, but there is also the possibility that they will rise.

Annual income to afford a $1,000,000 house

Generally, your mortgage payment should not exceed one-third of your monthly income. Finally, the amount you must pay 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 $182,153 before taxes.
  • 15-year mortgage. You must make at least $190,343 before taxes a year with a 6.35% interest rate and a 20% down payment on a $1,000,000 home.



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