Here's What Your Mortgage Payment Might Be on a $500,000 Home Today

There was a point in time when a $500,000 home may have seemed like an expensive one. But these days, home prices are up across the board, so you may end up having to look at homes in the $500,000 range to be able to live in the type of neighborhood you find most desirable and enjoy the home features you want.

As a general rule, it's important to keep your homeownership costs to 30% of your income or less. This means that if you bring home $10,000 a month, your predictable housing costs should really be $3,000 or under. And by "predictable housing costs," we're talking about your monthly mortgage payments, property taxes, homeowners insurance costs, and any other preset fees that might come into play, like HOA dues.

Also, as a point of clarity, the typical American may not bring home $10,000 a month. But those looking at a $500,000 home might, whereas lower earners will commonly be looking at less expensive homes.

But can you afford a $500,000 home? It will depend on what your monthly mortgage payments look like. And those will hinge on factors such as the down payment you make and the mortgage rate you're able to lock in.

What will a $500,000 home cost you?

The more money you're able to put down on a home, the lower you can expect your monthly mortgage payments to be. It's that simple. Similarly, the lower the interest rate you're able to snag on a home loan, the less you'll have to spend each month on a mortgage.

With that in mind, let's go through some different down payment scenarios based on a 30-year fixed-rate mortgage at 6.81% interest. That's the average interest rate for that loan product as of this writing, according to Freddie Mac.

This table will give you a sense of the mortgage payments you might be looking at.

So what does all of this mean for you? Well, going back to our example, if you earn $10,000 a month, it means you can swing $3,000 a month in housing costs. If you're able to make a 25% down payment on a $500,000 home and your property taxes and homeowners insurance only come to $550, then you're in that affordability range.

But if you can only swing a 10% down payment, then a $500,000 home isn't attainable, because you're basically maxing out the $3,000 you can afford to spend on a mortgage payment alone. To put it another way, on a $500,000 home, there's pretty much no way you're only looking at $62 a month in property taxes and homeowners insurance together.

Don't go overboard

It can be tempting to stretch your to purchase a home. But know that spending more than 30% of your income on housing could lead to a true financial crunch. So if you can't afford a $500,000 home today, which may be the case even if you're a higher earner, you might need to either look at homes in a lower price range or wait for mortgage rates to come down. Once the latter happens, all of the above numbers will look very different.

In fact, if you make a 20% down payment on a $500,000 home when mortgage rates are averaging 5%, you'll be looking at a monthly payment of just $2,148, compared to $2,612 at today's average rate. Clearly, that's a huge difference.