Average Mortgage Amount Hits a Record High
by Maurie Backman | Updated July 19, 2021 - First published on Feb. 3, 2021
Image source: Getty Images
Buyers are taking on larger home loans than ever to scoop up homes in today's market.
Low mortgage rates have fueled home buyer demand in recent months. And limited housing inventory has created a terrific situation for sellers -- they're able to command higher asking prices than ever. The result? Buyers have 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 that could mean some buyers are getting in over their heads.
The danger of taking on too high a mortgage
It's easy to see how attractive mortgage rates might push buyers to borrow more than they'd normally be comfortable with. But if you take on too high a mortgage, you'll risk a host of dangerous consequences.
For one thing, you might struggle to pay your mortgage once you realize how much those monthly payments eat into your budget. And if you fall behind on your mortgage payments, you could eventually risk losing your home.
Even if things don't reach that extreme, if you take on too high a mortgage, you could fall behind on other bills. Once that happens, your credit score could take a serious beating, making it difficult for you to borrow money again.
Finally, paying too much for a mortgage could cause you to fall short on other financial goals. Say you start spending so much on a mortgage that you can no longer afford to contribute to a retirement savings plan. You might manage to keep up with your home loan, but you could wind up putting yourself in a very bad spot later in life.
Don't get in over your head
Given the way home prices have risen, many of today's buyers have to choose between taking on a higher mortgage than they'd like or walking away from a home purchase. If you're not sure what to do, use a mortgage calculator to run some numbers and see what monthly payments your home loan will amount to.
For example, say you take out a 30-year, $395,200 loan at 2.819%, which is the average rate as of this writing. That will leave you with a monthly payment of $1,627 in principal and interest. However, that doesn't include other expenses like homeowners insurance and property taxes. You might also face other monthly expenses when you buy a home, like private mortgage insurance, which applies if you don't make a 20% down payment, or homeowners association fees. Plus, you'll need to maintain your home and set aside funds for inevitable repairs.
Seeing what monthly payment your mortgage amount translates to could help you determine whether you can swing it or not. And if you can't afford a home in today's market, you're better off sitting tight and waiting for housing inventory to open up. Once it does, home prices are likely to come down -- and you shouldn't have to borrow as much in order to have a place to call your own.
The Ascent's Best Mortgage Lender of 2022
Mortgage rates are on the rise — and fast. But they’re still relatively low by historical standards. So, if you want to take advantage of rates before they climb too high, you’ll want to find a lender who can help you secure the best rate possible.
That is where Better Mortgage comes in.
You can get pre-approved in as little as 3 minutes, with no hard credit check, and lock your rate at any time. Another plus? They don’t charge origination or lender fees (which can be as high as 2% of the loan amount for some lenders).
About the Author
Maurie Backman writes about current events affecting small businesses for The Ascent and The Motley Fool.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
