The answer is probably not very much.
The average annual interest paid on a $40,000 mortgage is just 1.4% of the principal. The typical monthly payment is $1,000. Add in the cost of taxes, insurance, maintenance and perhaps utilities and you’re left with 1.4% of the total loan balance or $3,200.
Even with the highest yield home loan offers, it’ll cost you more to keep the mortgage for 20-plus years than it would for 30. And most are not adjustable enough for many buyers. But most people want it to last at least that long.
It’s not even fair to call interest rates low
If most buyers consider interest rates cheap, how can they possibly argue that they are good for housing? The typical home loan is still higher than other debt-based products like credit cards, payday loans and student loans. Those with a credit score on the 600-800 range are able to access most loans through banks, most financial institutions discount them to 4% and even some nonbanks now have better terms than the big national banks.
The average interest rate is 3.9%, down substantially since the financial crisis. But the average amount of money needed to buy a home remains high because of high mortgage rates and rising home values.
The average interest rate could very well rise further, especially in a high-cost, low-interest environment. But it won’t rise anywhere near to the same amount it was in 2008 when the global economy tanked — even if rates reach as high as 35%, we would still need just a little more than $3,000 to pay for the typical 20-plus year loan.
And if we’re lucky to get an interest rate between 2% and 3% for 10 or 15 years, we could pay less than $1,300 a month on a 50-year mortgage. That’s right in line with what people can already do with other debt-free debt such as credit card debt, auto loans or student loans.
So it’s true that interest rates remain low, and the cost of borrowing isn’t very much higher than any other type of debt. But even if you have to borrow $1,300 or more a month, it may not be enough to pay for your mortgage. Even if you can afford the average interest rate for 30 years, you’d still need to spend $3,200 for the interest.
So to make it happen, we’ll
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