By: cbsnews.com
The average difference in mortgage interest rates since the end of 2023 has been more than one percentage point. And they might drop even lower after this week.
Homebuyers may finally see some relief from rising mortgage interest rates as the Federal Reserve is set to announce its first federal funds rate decrease since 2020.
Even though many expect this week’s decrease to be merely 25 basis points (which many lenders may have already priced in), the next months provide the possibility of further cuts, when the Fed meets in November and again in December. In 2025, additional cuts might also be implemented.
In light of this, potential homeowners should begin making specific precautions right away. One of the most crucial things to figure out how much a mortgage might cost each month.
And since there are currently a record number of homes in the United States valued at $1 million or more, many prospective purchasers ought to begin projecting their monthly mortgage payment. We’ll lay down the monthly payments for a $1 million mortgage now and after interest rates are lowered below.
After rates are lowered, how much would a $1 million mortgage cost each month?
Knowing how much a $1 million mortgage would currently set you back each month may help you decide whether waiting for mortgage rate reductions is worthwhile.
Based on average rates for two loan terms, these monthly payments for suitable borrowers would be as follows (assuming the traditional 20% down payment of $200,000, minus taxes and insurance):
| Mortgage Term | Interest Rate | Monthly Payment |
| 15-year mortgage | 5.78% | $6,656.14 |
| 30-year mortgage | 6.41% | $5,009.29 |
Since mortgage interest rates are not closely correlated with the federal funds rate, a 25 basis point decline in the former is unlikely to have the same exact impact on mortgage interest rates. Nevertheless, within the coming days, weeks, and months, rates may decrease by that much.
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With the same disclaimers as before, the following is what a $1 million house would require in monthly mortgage payments:
| Mortgage Term | Interest Rate | Monthly Payment |
| 15-Year Mortgage | 5.53% | $6,549.41 |
| 30-Year Mortgage | 6.16% | $4,879.01 |
Payment amounts in the case of a half-percentage-point reduction would be as follows:
| Mortgage Term | Interest Rate | Monthly Payment |
| 15-year | 5.28% | $6,443.65 |
| 30-year | 5.91% | $4,750.21 |
And in the scenario that rates drop by a full percentage point from the averages of today, this is how they would seem at the end of the year or in 2025:
| Mortgage Term | Interest Rate | Monthly Payment |
| 15 years | 4.78% | $6,235.05 |
| 30 years | 5.41% | $4,497.24 |
Thus, if rates drop by half a percentage point, purchasers who wait might be able to save hundreds of dollars each month on their mortgage payments. However, there’s no set date for when that will occur.
Even if it does, there’s a chance it will result in more buyers vying for the same property, greater home costs, and the loss of your ideal house as rates drop. In order to choose the optimal course of action, carefully balance the potential savings against these potential issues.
Even with the traditional 20% down payment, qualifying applicants will currently pay upwards of $6,500 or $5,000 per month for a $1 million mortgage, depending on the length of the mortgage.
However, this is a reality that many purchasers are already facing due to the increasing number of homes in the United States that are priced at this level or more. The next concern is whether or not to wait for rates to drop.
Waiting will present its own set of challenges and difficulties, including increasing property prices that may easily outweigh any rate savings, even though anticipated rate decreases could result in savings of hundreds of dollars.
