Your monthly mortgage payment is determined by two factors. The determining factors include your interest rate and the amount of money you borrow to buy a house.
When you are trying to decide how much to spend on a home, you'll want to keep in mind that taking out a larger mortgage loan can mean much higher monthly payments. Not only that, but buying a costlier house could potentially also increase your property taxes and your insurance costs as well.
Here's what you need to know about how adding an extra $100,000 onto your mortgage loan balance could affect your housing payments.
What an extra $100,000 does to your monthly mortgage costs
If you are thinking about increasing your housing budget, the first thing to know is that the impact of adding an extra $100,000 to your loan balance is going to vary depending on your mortgage interest rate as well as depending on the kind of mortgage loan you choose.
For example, here are a few different scenarios that show how an additional $100,000 borrowed would affect your monthly payment amount:
- If you take out a 30-year fixed-rate loan with an interest rate of 7.50%, each $100,000 you add to your mortgage payment would raise your payment by $699.
- If you take out a 30-year fixed-rate loan with an interest rate of 5.00%, each $100,000 would result in a $537 bump up in your monthly payment amount.
- If you take out a 15-year fixed-rate loan with an interest rate of 6.50%, you would add $871 to your monthly mortgage payment if you increase your loan balance by $100,000.
The higher your interest rate, the bigger the impact of the extra $100,000, because you will be paying more interest on a larger sum when you increase your loan balance. If you shorten your payment term, that also means adding an extra $100,000 is going to have a bigger effect since you have much less time to take care of paying off the extra money you're borrowing.
Regardless, though, taking on $100,000 in extra mortgage debt is going to raise your principal and interest payments by hundreds of dollars per month. You need to think seriously about whether these additional payments are affordable. If your housing costs would end up exceeding around 25% of your income once you add the extra $100,000 in, then you should think twice about bumping up your budget.
Don't forget other costs of a more expensive house
The figures above show what would happen to the principal and interest portion of your mortgage payment if you added $100,000 extra onto your loan. But if you were borrowing more to purchase a costlier house, you could also get stuck with higher property taxes and higher homeowners insurance costs.
That's because your home's appraised value determines your taxes, and more expensive houses generally cost more to insure because the insurer would have to pay out a higher amount if the home was destroyed.
Many mortgage lenders also require you to include property taxes and insurance in your monthly mortgage payment. This money is then put into an escrow account until it's needed to pay the bills. If you've purchased a costlier home, both of these costs would increase so your monthly mortgage payment would go up even more to reflect that.
Before you increase your housing budget -- whether by $100,000 or some other amount -- be sure to do the math on both the principal and interest increase as well as on added taxes and insurance. You might just find that the increase isn't something your budget can accommodate.
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