The Average American Mortgage Payment Has Spiked 96% In The Past Four Years

It's too early to determine whether the Federal Reserve's decision to raise interest rates has benefited America's economy. However, the impact of higher interest rates on mortgage payments is evident. According to Zillow, the average mortgage payment in America has surged by 96% in the last four years. This substantial rise undoubtedly causes significant financial strain for many homeowners.

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Zillow also highlights another concerning trend: homebuyers in major metropolitan areas of the United States now require an average down payment of $127,000 to purchase a home and comfortably manage the mortgage. It's important to note that this figure isn't for luxurious properties in places like Pacific Palisades or The Hamptons but for regular homes. 

That's a lot of liquid money for even a relatively wealthy person to come up with, much less someone earning the median household income in America of $74,000 per year (according to the U.S. Census). This explains why Zillow's study also showed that 43% of homebuyers in 2023 reported having to rely on a financial gift from family and/or friends to help raise funds for the down payment.

These high down payments are a direct result of today's interest rates. Lenders consider borrowers "comfortably" able to afford a mortgage when the monthly payment is equivalent to (or less than) one-third of the borrower's average monthly salary. Zillow data shows the average monthly payment is $2,200, which a buyer making $77,000 per year could theoretically afford.

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However, once today’s interest rates are factored into the equation, the six-figure down payment may be the only way for borrowers to get an affordable payment. Now that the average down payment of $127,000 is roughly one-third of America's median home price and nearly double America's median household income, the housing market has shown signs of slowing down. Despite that, it's worth noting that interest rates aren't the only factor driving up mortgage payments.

It's important to remember that a "mortgage payment" includes several components: loan principal, loan interest, property taxes, and insurance. This total amount is what borrowers must pay monthly to meet their mortgage obligations. Home insurance costs are rising in many states, especially regions at high risk of natural disasters like the Gulf Coast and Pacific coast, contributing to increased mortgage payments. 

Homeowners in two of America's most populated states, Florida and California, are struggling with rate spikes due to insurers leaving the state or protecting themselves against future claims. While this makes sense on paper, adding $400 per month to a mortgage payment for insurance premium hikes exacerbates the financial strain caused by interest rates on loans originated in the last four years.

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