According to the Federal Reserve, the median sales price of homes in the United States reached over $400,000 in 2022. So, for those looking for a home in a desirable area, you could very well be looking at paying $500,000 or more.
You may be wondering, what is the monthly mortgage payment on a $500,000, and what do I need to do to qualify? Here is a closer look at what you can expect if you’re looking in this price range.
hash-markMonthly Payment for a $500,000 Mortgage
Your monthly mortgage payment depends on a few factors, such as the down payment size and the interest rate offered by your lender. Assuming that you put down the standard 20% down payment (or $100,000), you’d be left with a principal balance of $400,000. The average mortgage rate for a $500,000, 30-year fixed-rate loan is around 5.4% for those with good credit.
So, your monthly payment would be around $2250 without taxes and fees. Of course, it could be less if you could secure a better rate or make a sizeable down payment. Likewise, it could be more if you’re financial profile isn’t as strong or you only put down 5-10%. But you should budget for somewhere between $2000 and $2500 per month.
Also, if you choose a 15-year fixed-rate loan at a rate of 5.4%, you’d be paying around $3,000 per month. But you’d also pay off the loan in half the time and save yourself in interest.
hash-markTotal Interest Paid on a $500,000 Mortgage
Mortgages aren’t free, so if you expect to borrow half a million dollars, you will be paying a considerable amount of interest over the life of the loan. The precise amount of interest you pay will largely depend on your rate and how quickly you pay off the loan.
In the above example of a 30-year loan at 5.4%, you’d be paying $510,755.43 in total interest unless you could make a large lump sum payment and pay off the loan before the end of the 30 years. But in that case, you may also be subject to prepayment penalties.
For a 15-year fixed-rate mortgage at 5.4%, you’d only pay $230,607.95 over the life of the loan. However, your monthly payments would be substantially larger, which may not be feasible for many.
hash-mark$500,000 Mortgage Amortization Schedule
You can create an amortization schedule if you’d like to see exactly how much of your monthly payment is going toward the principal and how much is going toward interest. Amortization is the process of reducing debt with regular payments. Interest is calculated as a percentage of the remaining principal. So, as the principal decreases, the portion of the payment put toward interest will also be reduced. An amortization schedule can chart this progress.
Let’s take the above example. The amortization schedule for a 30-year fixed-rate loan of $500,000 at 5.4% would look like this:
Beginning Balance | Interest | Principal | Ending Balance | |
1 | $400,000 | $1,800.00 | $446.12 | $399,553.88 |
2 | $399,553.88 | $1,797.99 | $448.13 | $399,105.75 |
3 | $399,105.75 | $1,795.98 | $450.14 | $398,655.60 |
4 | $398,655.60 | $1,793.95 | $452.17 | $398,203.43 |
5 | $398,203.43 | $1,791.92 | $454.20 | $397,749.22 |
6 | $397,749.22 | $1,789.87 | $456.25 | $397,292.97 |
7 | $397,292.97 | $1,787.82 | $458.30 | $396,834.66 |
8 | $396,834.66 | $1,781.60 | $460.36 | $396,374.29 |
9 | $396,374.29 | $1,783.68 | $462.44 | $395,911.86 |
10 | $395,911.86 | $1,781.60 | $464.52 | $395,447.34 |
11 | $395,447.34 | $1,779.51 | $466.61 | $394,980.73 |
12 | $394,980.73 | $1,777.41 | $468.71 | $394,512.02 |
You can continue the schedule for as many weeks as you’d like. But as you consistently make payments toward the principal, the interest amount will naturally decrease until the balance is paid off completely.
hash-markHow to Get a $500,000 Mortgage
If you want to get a $500,000 mortgage, first, you’ll have to qualify for the loan. Every lender will have different requirements, but you need good credit and enough income to make payments comfortably. Most conventional lenders require a credit score of 680 and above, but there are loan programs that accept lower scores for those who qualify.
The exact income requirements will vary from lender to lender. But most experts agree that you shouldn’t spend more than 28% of your income on your mortgage payments. So, to comfortably afford a $500,000 home, you should make at least $80,000 per year (although when you include taxes and fees, it may need to make closer to $100,000 to be on the safe side).
This can be combined income if you purchase the home with a spouse or life partner. But to get a $500,000 mortgage, you will have to show financial documents proving you can afford the loan.
hash-markWhere to Get a $500,000 Mortgage
You can get a $500,000 mortgage from virtually any conventional lender such as a bank or credit union. If you don’t meet the credit and income requirements of a conventional loan, other options are available, such as FHA, VA, and USDA loans.
An FHA loan is insured by the US Federal Housing Administration and allows borrowers to get a loan with as little as 3.5% down and a minimum 580 credit score. On the other hand, VA loans are strictly for veterans as a benefit of service and allow borrowers to get a loan with laxer requirements, including no money down.
USDA loans are specifically for rural home buyers and offer flexible credit and down payment requirements. Whichever loan program you ultimately choose, you should do your research and shop around to ensure you’re getting the best rate and loan terms available.
