What is an Average Mortgage Payment and How is it Calculated?

Buying a home is an exciting milestone in many people’s lives. However, it also comes with the long-term commitment of paying a monthly mortgage. As you budget and plan for homeownership, one of the key numbers you’ll want to know is the amount of your future mortgage payment.

The average mortgage payment in the U.S. is around $2,200 per month. However, this national number doesn’t tell the whole story. Your actual mortgage payment depends on several important factors, including:

• The price of the home
• Your down payment amount
• The interest rate on your loan
• The length of your loan term
• Your location

Understanding these variables will help you estimate your personalized mortgage payment, This article explains exactly what goes into an average monthly mortgage payment and how you can calculate your own

What Impacts the Monthly Payment?

Four primary factors determine your monthly mortgage costs

Home Price

Not surprisingly, the more expensive the home, the higher the monthly payment. Even a small difference in home price translates into hundreds more per month. For example, a $300,000 home with 20% down and a 3% rate translates into roughly a $1,265 payment on a 30-year mortgage. Raise the price to $350,000, and the payment jumps to around $1,470.

Down Payment

The more money you put down upfront, the less you have to borrow. And the less you borrow, the lower your monthly payment. On that same $300,000 home, a 10% down payment means you borrow $270,000 and pay around $1,340 each month. A bigger 20% down payment of $60,000 lowers your loan to $240,000 and payment to $1,265.

Interest Rate

The prevailing mortgage rates directly impact how much interest you pay each month. Today’s rates are almost a full percentage point higher than a year ago. On a $240,000 loan, a 2% rate means a payment of $1,013. At 3%, it rises to $1,265. And at 4%, it jumps to $1,432. Clearly, your rate makes a huge difference.

Loan Term

Most U.S. mortgages are either 15 or 30 years. The longer term means smaller payments but greater interest costs over time. Using the previous $240000 loan example, a 15-year term at 3% equals a $1,656 monthly payment. Stretching to a 30-year term lowers the payment to $1,265.

Calculating Your Exact Monthly Payment

You can determine your personalized mortgage payment by using an online calculator. Plug in the home price, your down payment, current rates and loan term. This will estimate your principal, interest, taxes and insurance.

As an example, say you purchase a $350,000 home with 20% down and qualify for a 30-year fixed mortgage at 5%. Your inputs would be:

• Home Price: $350,000
• Down Payment: $70,000
• Loan Amount: $280,000
• Interest Rate: 5%
• Loan Term: 30 years

The calculator would determine your payment is around $1,485 per month. This includes principal, interest, and estimated property taxes and insurance. When you have these numbers, you can better set your home buying budget.

Average Monthly Payments by Location

Average mortgage payments vary significantly across the country based on home prices and property taxes in each state and region. According to census data, the highest monthly payments are in coastal cities like San Francisco and New York. More affordable Midwest markets like St. Louis and Cincinnati have lower average payments.

Here are the average monthly mortgage payments for selected metro areas:

• San Francisco, CA – $3,603
• New York, NY – $3,304
• Los Angeles, CA – $2,953
• Miami, FL – $1,808
• Dallas, TX – $1,642
• Atlanta, GA – $1,513
• Chicago, IL – $1,578
• Phoenix, AZ – $1,561
• St. Louis, MO – $1,220
• Cincinnati, OH – $1,127

Check prices and taxes in your local market to estimate your monthly payment. Home prices and property taxes alone can add or subtract hundreds of dollars each month.

Estimate Your Total Monthly Costs

When setting your home buying budget, realize your mortgage payment is just one piece of your total housing costs. You’ll also need to factor in:

• Property taxes – Typically 1-2% of the home value per year. This can add hundreds to your monthly costs.

• Homeowners insurance – Usually 0.2% to 1% of the home value per year, or around $100-$200 per month.

• Private mortgage insurance (PMI) – Required if your down payment is less than 20% of the purchase price. Typically 0.2% to 2% of the loan amount per year.

• Homeowners association (HOA) fees – For condos and other community associations, fees are usually $100 to $300 per month.

• Repairs and maintenance – Budget around 1% to 4% of the home’s value per year for upkeep costs.

• Utilities – Electricity, gas, water, cable, phone and other services add up. Budget a few hundred dollars per month.

Working all these expenses into your home buying budget ensures you get the full financial picture. While the mortgage payment might fit your needs, the other costs could stretch your budget.

Ways to Lower Your Monthly Payment

If your estimated payment seems too high, you have options to reduce it:

• Make a larger down payment – Putting down more upfront directly lowers the mortgage amount.

• Lengthen the loan term – Go with a 30-year instead of 15-year mortgage to spread costs over more time.

• Shop for the best rates – Even a small rate difference affects your payment. Compare multiple lender quotes.

• Buy a lower-priced home – Smaller loan amounts mean smaller monthly payments.

• Increase your income – Lenders look at debt-to-income ratios. Higher earnings help approve larger loans.

• Pay points to buy down your rate – Paying loan fees upfront reduces your ongoing rate.

• Make an extra principal payment – One extra payment per year goes directly to reducing principal.

The Bottom Line

An average mortgage payment gives you a baseline for what to potentially expect. But run the numbers for your specific situation to determine the monthly payment you can truly afford. Accurately calculating the principal, interest, taxes, insurance and fees ensures you start off on solid financial ground as a homeowner.