Average mortgage amount hits record high
Low mortgage rates have boosted homebuyer demand in recent months. And the limited inventory of homes has created a great situation for sellers – they are able to charge higher asking prices than ever before. The result? Buyers need to borrow more money to cover their home purchases. In fact, the average purchase loan amount hit a recent record high of $ 395,200, according to the Mortgage Bankers Association. But it could mean that some buyers are getting out of hand.
The danger of taking out a mortgage that is too high
It’s easy to see how attractive mortgage rates could push buyers to borrow more than they would normally be comfortable with. But if you take out a mortgage that is too high, you risk many dangerous consequences.
On the one hand, you might have a hard time paying your mortgage once you realize how much those monthly payments are straining your budget. And if you fall behind on your mortgage payments, you could potentially risk losing your home.
Even if things don’t reach that extreme, if you take out a mortgage that’s too high, you could fall behind on other bills. Once this happens, your credit score could take a serious hit, preventing you from borrowing money again.
Finally, paying too much for a mortgage could prevent you from reaching other financial goals. Suppose you start spending so much on a mortgage that you can no longer afford to contribute to a retirement savings plan. You might be successful in coping with your home loan, but you could end up in a really bad situation later in life.
You do not take the head
With rising home prices, many buyers today are faced with the choice between taking out a mortgage that is larger than they would like or forgoing the purchase of a home. If you don’t know what to do, use a mortgage calculator to work out a few numbers and see how much your monthly mortgage payments will be.
For example, suppose you take out a loan of $ 395,200 over 30 years at 2.819%, which is the average rate at the time of writing. This will leave you with a monthly payment of $ 1,627 in principal and interest. However, this does not include other expenses like home insurance and property taxes. You might also face other monthly expenses when buying a home, like private mortgage insurance, which applies if you don’t make a 20% down payment, or homeowners association fees. In addition, you will need to maintain your home and set aside funds for unavoidable repairs.
Seeing what monthly payment your mortgage amount is could help you determine whether or not you can change it. And if you can’t afford a home in today’s market, you’d better just sit there and wait for the housing stock to open. Once it does, home prices are likely to go down – and you shouldn’t have to borrow so much to have a place of your own.