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Whether you’re considering purchasing a home or you already have a mortgage of your own, it’s natural to wonder: What’s the average monthly payment? How do I stack up?
We’ll go over these numbers, but more importantly, we’ll explain what factors affect them and why only looking at averages may not be as useful as you think.
What Is the Average Mortgage Payment?
According to the most recent data from the U.S. Census Bureau, the average mortgage payment was $1,427 per month.
However, there are some important caveats to note. First, that data is from 2021. The average interest rate on a 30-year fixed-rate mortgage was 2.9% in July of that year. For context, in July of 2023, the interest rate was up to 6.81%.
That means the average payment in 2023 will be higher. However, the U.S. Census Bureau won’t release the data from this year until 2024.
Median mortgage payment
Using the median – instead of the average – can provide a better representation of what the typical person is paying. The reason is because medians mitigate the impact of outliers, which can skew averages.
We also have median data that’s more recent. According to the Mortgage Bankers Association (MBA), the median purchase mortgage payment was $1,964 in January of 2023. That was a 28.7% increase, equivalent to $437 more, compared to what it was the previous year.
Factors That Influence Mortgage Payment
Many factors go into what your mortgage payment will be. Averages and medians can be useful for big-picture takeaways, but when it comes to planning your financial future, you need to take a variety of variables into account.
Keep in mind that all of these factors play a role when it comes to calculating your payment. In other words, they don’t exist in a vacuum. The gains you make in one area could be offset by another.
Try our mortgage calculator to play around with different variables and see for yourself. We’ve explained the most critical ones below.
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Mortgage structure or term
The length (term) of the mortgage will have a huge impact on what your monthly payment will look like. The most common options are 15-year or 30-year fixed mortgages. With a 30-year loan, you’ll have a significantly lower monthly payment, but you’ll end up spending much more in interest over the life of the loan.
Besides fixed-rate mortgages, there are also adjustable-rate mortgages (ARMs), where the interest you pay can change after a few years. Also, the amount you owe each month could change drastically as a result.
The more the house costs, the more you’ll need to borrow to pay for it. This can affect your loan-to-value (LTV) ratio. Let’s say you save up $50,000 for a down payment. If you purchase a house worth $400,000, you’ll pay more per month than if you purchased a $300,000 house.
The higher percentage you can put toward your down payment, the better your LTV ratio will be. If you can put 20% or more down, you can also escape paying private mortgage insurance (PMI) on conventional loans – more on that later.
Additionally, your down payment can also impact the rates your mortgage lender qualifies you for. Making a large down payment is one of the best things you can do to lower your monthly payments.
If you hear people talking about the “right” time to buy a house, they’re usually referring to interest rates. Essentially, this is how much it costs to borrow money for the loan. A higher interest rate can make a significant difference in your monthly payment. Let’s look at an example.
Let’s say you’re able to put 20% down on a $325,000 home – that’s $65,000. In this scenario, the interest rate is 5%. For a conventional 30-year mortgage, your monthly payment would be estimated at $1,396.
Now let’s look at a 7% interest rate, but leave everything else the same. With the same down payment, price point and loan term/structure, you’d pay an estimated $1,730 per month.
That’s a difference of $334 per month, or a 23.9% increase in your estimated monthly payment.
Interest rates can be frustrating because they’re largely outside of your control. However, there are some things you can do to improve your interest rate, like improving your credit score.
You also have the option to buy down your interest rate.
Additional Costs To Consider
There will also be some additional costs that impact your monthly payment.
- Property taxes: Local government taxes can be added to your mortgage payment. This can make up a considerable portion of the payment, depending on where you live. Learn more about property taxes.
- Homeowners insurance: Covers loss, damage and liability that occurs on your home and property. Annual premiums are usually divided by 12 and included in your monthly mortgage payment through escrow.
- Private mortgage insurance: If you put less than 20% down on a conventional loan, you’ll owe PMI. This usually costs 0.2% – 2% of the loan amount per year.
- Homeowners association (HOA) fees: Not all properties have an HOA, but if they do, you usually can’t opt out. This means you’ll be responsible for paying membership fees, which can range from negligible to extremely expensive depending on the types of amenities provided.
Tips To Lower Your Monthly Mortgage Payment
Mortgage payments are a lot like life. There will always be things beyond our control that affect us. But by the same token, there are actions that we can take to help ourselves. Here are the most important ones.
- Improve your credit score: Generally, the better your credit score, the better loan terms and rates you’ll be offered. A higher credit score will also allow you to qualify for different types of loans, like a conventional loan.
- Save a bigger down payment: The more you put down, the better your LTV ratio. If you hit that 20% number, you’ll also save on mortgage insurance. It can be tempting to rush into buying a home, but if you’re disciplined enough to build your down payment fund, it can make a huge difference in the affordability of the home.
- Shop lenders: For a variety of reasons, lenders charge different fees and rates. Take the time to talk to multiple lenders and ask them questions. You can save yourself a substantial amount of money over the life of the loan simply by calling around.
Final Thoughts on Average Mortgage Payments
While average and median payments can be a quick reference, without knowing specifics – like the term of the loan, down payment, purchase price and so on – it’s not a very useful number. Taking the time to understand each component that goes into the final number will help you make better decisions when it comes time to purchase a home or refinance your mortgage.
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The Short Version
- The latest U.S. Census data (from 2021) puts the average monthly mortgage payment at $1,427.
- Median data is more useful for calculating a typical payment because it accounts for outliers. More recent data from the Mortgage Bankers Association has median home purchase mortgage payments at $1,964 in January 2023
- Factors influencing your monthly payment include mortgage structure, purchase price, down payment, interest rates and more. Use our mortgage calculator to see for yourself
United States Census Bureau. “2021 National — Housing Costs — All Occupied Units.” Retrieved August 2023 from https://www.census.gov/programs-surveys/ahs/data/interactive/ahstablecreator.html?s_areas=00000&s_year=2021&s_tablename=TABLE10&s_bygroup1=1&s_bygroup2=1&s_filtergroup1=1&s_filtergroup2=1
St. Louis Federal Reserve. “30-Year Fixed Rate Mortgage Average in the United States.” Retrieved August 2023 from https://fred.stlouisfed.org/series/MORTGAGE30US
Mortgage Bankers Association. “MBA: Mortgage Application Payments Increased 2.3% in January to $1,964.” Retrieved August 2023 from https://newslink.mba.org/mba-newslinks/2023/february/mba-mortgage-application-payments-increased-2-3-in-january-to-1964/
Experian. “How Much Does Private Mortgage Insurance (PMI) Cost?” Retrieved August 2023 from https://www.experian.com/blogs/ask-experian/how-much-does-private-mortgage-insurance-pmi-cost/