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What is the average mortgage on a million-dollar home?

What is the average mortgage on a million-dollar home?

Buying a home can be a very attractive investment choice, even if it costs you a million dollars or more. And in popular capitals such as Sydney and Melbourne, it’s not uncommon to see million-dollar property sales. 

If you’re a first-time buyer, you may want to take advantage of low interest rates and government incentives in order to buy a new home as soon as possible. If you’re an investor, you may be looking to leverage these conditions to buy your first property or expand your portfolio. Either way, you’ll have to look into if you can afford that million dollar mortgage and the repayments that come with it.

How much are mortgage repayments on a $1 million dollar house?

Let’s assume that you’ve found your million-dollar dream home. You have the 20 per cent deposit ($200,000) and are borrowing the remaining 80 per cent ($800,000) from a lender. As a bonus, because you have a 20 per cent deposit you don’t have to pay Lenders Mortgage Insurance (LMI).

Taking all these numbers into account and assuming an interest rate of 3 per cent and loan term for 25 years, your monthly payment on a $1 million dollar house could come up to $3794 (this example is for informational purposes only and does not account for fees or changes to your interest rate over time). 

The mortgage repayments you’ll end up paying may really depend on how competitive your lender’s offer is. If you’re keen on sticking with your current lender and would prefer not to move to another bank, you can ask for a rate reduction to save some money.

Other numbers to consider

While doing the math and calculating your mortgage payments, please remember that your interest charges may not stay the same for the full loan term. Choosing a home loan with a fixed interest rate may allow you to lock in your repayment amount for a term as long as five years. But once the fixed-rate term expires, it goes back to the lender’s variable rate which could affect your budget and expenses.

If you’re looking to apply for a new loan or refinance an existing home loan, it is also important to remember that the cost goes above and beyond the interest component of the mortgage payment. Miscellaneous expenses like upfront and ongoing mortgage fees, as well as fees for accessing features and other benefits, can add up quickly. 

Lowering the mortgage payments on a million dollar home

From a strategic, financial perspective, you may want to lower the mortgage payments on your million dollar property. 

If the equity in your current property has gone up, maybe because its property value has increased, you may be able to get a better deal on your mortgage by refinancing with a home loan that carries a lower interest rate. These loans tend to have a low Loan to Value Ratio (LVR) requirement. The LVR is essentially the loan amount as a percentage of the value of the house. This is done by dividing the loan amount by the value of the home. 

If you're an owner-occupier with a significant chunk of equity in your property, lenders are likely to consider you as a trustworthy, low-risk borrower which automatically gives you a better negotiating position for a lower interest rate. 

Please consider seeking the advice of a mortgage broker to check mortgage options on your million dollar home that suit your personal financial needs.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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