Key Takeaways
- The average interest rate on a 30-year fixed-rate mortgage was 6.88% on Thursday, which can make affording a $1 million home more expensive than a few years ago.
- Homes priced at $1 million or more are plentiful now than they were a year ago, especially in metro areas like Boston, New York City, and San Diego.
- A household income of at least $226,200 is recommended if you want to buy a house that costs $1 million or more.
Homes that cost $1 million or more are no longer exclusively for the wealthy homebuyers. In June, 8.5% of homes in the U.S. were worth $1 million or more, the highest share ever, according to Redfin. That’s up from 7.6% a year prior.
And homes valued at $1 million or higher account for over 20% of the inventory in Boston, New York, Seattle, and several California cities: Anaheim, Los Angeles, Oakland, San Diego, San Francisco, and San Jose. Million-dollar-plus homes are also plentiful elsewhere, including in Colorado, Washington, D.C., Florida, New Jersey, and Texas.
But with mortgage rates remaining high in 2024—the average mortgage rate for a 30-year fixed loan was 6.88% on Thursday—you may be wondering if you can even afford a $1 million home. Well, all it takes is a yearly salary or household income of $268,933 to afford it comfortably.
How Much Does a $1 Million Home Cost Per Month?
Is your salary high enough to buy a $1 million home? This question assumes you don’t have $1 million in spare cash or equity in another home you’re about to sell. Instead, you have to get a mortgage. The salary you’ll need depends on the length of the mortgage, the interest rate, and the size of any down payment.
Say you opt for a 30-year, fixed-rate mortgage. You’ll probably make a down payment of 20% or more to avoid the added expense of private mortgage insurance (PMI).
One guideline for calculating how much home you can afford is the mainstream rule of thumb—known as the 28/36 rule—that says your mortgage payment should be 28% or less of your monthly gross income. That mortgage payment consists of the principal on your loan, interest, taxes, and homeowners’ insurance—a cost quartet often referred to as PITI.
Because taxes and insurance differ greatly by location, we’ll just look at principal and interest for this example. If you secure a 6.00% or higher interest rate for an $800,000 loan (a $1 million house with 20% down), you’ll pay $5,258 per month. And if the house is more than $1 million, your payment will be higher.
Imagine you are house hunting in San Diego, where the typical home is valued at $1,003,863. Your monthly mortgage payment on that home in San Diego, after 20% down, with a 30-year fixed-rate mortgage and a 6.88% interest rate, would be $5,278:
- Principal: Fixed-rate home loans are typically amortized, meaning that your overall payments remain the same, but the amount applied to interest and principal commonly adjusts monthly. Less goes toward interest as you pay down the debt and more goes to the principal. In the first month—November 2024—your monthly payment would include about $674 in principal.
- Interest: With an average interest rate of 6.88%, your November monthly mortgage payment will include about $4,604 in interest. If you carry the loan through its entire 30-year life, by the final month of October 2054, your interest payment will be about $30. Your principal payment will be $5,248.
To Comfortably Afford a $1 Million Home, You Should Make $18,850 Per Month
Now you can calculate the monthly salary or income needed to afford a $1 million home. Let’s go back to the 28/36 rule: Your monthly housing payment should be 28% or less of your monthly gross income, so that means to afford a monthly payment of $5,278 for a house in San Diego, you must have a monthly income of at least $18,850, or an annual income of $226,200.
You can calculate this out like this:
- Monthly payment x 100 / 28%
- $5,278 x 100 = 527,800 / 28 = $18,850
- $18,850 x 12 months = $226,200
Tip
Even if you can afford the monthly mortgage payment, remember not to overextend yourself. It’s recommended that payments for your mortgage, credit cards, and other debts total no more than 36% of your gross income.
How to Lower Your Mortgage Payment
To make it easier to afford a $1 million home, here are some tips for reducing your monthly mortgage payments.
Make a Larger Down Payment
Perhaps you could afford a down payment of, let’s say, $250,000. That would reduce your monthly payment to about $4,955, a savings of $323 per month. Over the 30 years of the loan, you’d pay over $65,000 less in interest.
Reduce the Length of the Loan
If your mortgage runs for, say, 20 years instead of 30, your monthly payments on a loan would rise, but you would pay less in interest over the life of the loan. Locking in a 20-year mortgage instead of a 30-year mortgage on a $1 million house could save you over $300,000 in interest, depending on the interest rate.
Make One or More Extra Payments Annually
This option is similar to reducing the length of your loan. Overall, you’d save money and have more flexibility, as you wouldn’t be locked into the higher monthly payments of a shorter loan. One extra payment of $5,278 each year would save you hundreds of thousands of dollars in interest payments over the life of the loan. It would also reduce how long it takes to pay back the loan by years.
Shop Around for a Lower Mortgage Rate
The lower your mortgage rate, the lower your monthly payment. Shop around and compare mortgage lenders to find the best mortgage interest rate. The rates lenders charge can change daily so it’s important to lock in a rate that you feel is fair for the home you’re buying.
How We Track Mortgage Rates
The national and state averages cited above are provided as is via the Zillow Mortgage API, assuming a loan-to-value (LTV) ratio of 80% (i.e., a down payment of at least 20%) and an applicant credit score in the 680–739 range. The resulting rates represent what borrowers should expect when receiving quotes from lenders based on their qualifications, which may vary from advertised teaser rates. © Zillow, Inc., 2024. Use is subject to the Zillow Terms of Use.