There’s been a lot of attention paid to higher home prices this year. However, home prices aren’t all that are up. Typical mortgage payments are up by 11% over last year because of higher mortgage rates, according to a new article by CoreLogic.The typical mortgage payment is expected to rise another 13% in the coming year.
The article indicated that it doesn’t make sense to just look at home prices when accessing home affordability. It gave the example of a home where the sales price had risen by 6.4% in a year, while at the same time, due to higher mortgage rates, the mortgage payment on the home had actually increased by 11.1%.
What Is the Typical Mortgage Payment?
CoreLogic says the “typical mortgage payment” is the “mortgage-rate-adjusted monthly payment based on each month’s U.S. median sale price.” It uses Freddie Mac’s average interest rate on a 30-year fixed-rate mortgage with a 20% down payment, but excludes insurance and taxes that may be added to the mortgage payment.
“The typical mortgage payment is a good proxy for affordability because it shows the monthly amount that a borrower would have to qualify for in order to get a mortgage to buy the median-priced U.S. home. When adjusted for inflation, the typical mortgage payment also puts current payments in the proper historical context,” the CoreLogic article stated.
The typical mortgage payment for September of this year was $794, while it was predicted to be $883 by the same time next year. Both these figures, however, are well below the 2006 peak amount of $1,257.
Share of Income Used for Mortgages Also Up
A separate report earlier this year from Zillowindicated that mortgage payments already accounted for 15.8% of homeowners’ income at the end of 2016, the highest this share had been since 2010. It attributed the increase to rising mortgage interest rates, as well as higher home prices, but also reported the share to still be well below the high of 21% reported between 1985 and 2000.
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